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Unit Price

$1.8249 as at 1/05/2012

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Newsletter

REPORT TO THE UNIT HOLDERS IN THE ASPIRING FUND FOR THE MONTH ENDED 31 OCTOBER 2011

	Aspiring Fund	NZ50G	ALL Ords   Accumulation Index (rebased     in NZ$)
Month October	6.87%	-0.32%	10.13%
Quarter to Date	6.87%	-0.32%	10.13%
Last 12 Months	9.55%	0.84%	-2.08%
Financial Year to Date	2.13%	-3.12%	-12.75%
Annualised since PIE (1/10/07)	8.68%	-5.88%	-3.11%

The Unit Price as at 1st November 2011 was $1.6744.

The performance for the month of October  was 6.87% after all expenses.

Our asset allocation at the end of the month was approximately:

New Zealand Equities	22.0%
Australian Equities	40.2%
Global Equities	2.2%
Corporate Credit/Bonds	15.0%
Cash	20.6%

The Net Asset Value of the fund as at 1st November 2011 was approximately $94,500,000.00

 

The Fund’s October return of 6.87% was our second best month since inception and comfortably beat the New Zealand market’s slight decline but lagged the Australian and most global markets.   The unit value hit an all time high as we made up for the losses experienced in the last six months of global turmoil.

Given the environment in which we have been operating for most of the Fund’s life, monthly leads and lags are inevitably erratic and almost irrelevant.  Our annualised return over the last five years is a tad over 8.9%. The MSCI Global Index has returned -2.5% annualised over the same time period and both the Australian and New Zealand market indices are also in negative territory.

The New Zealand market’s disappointing performance was largely attributable to earnings downgrades from Cavalier, Fletcher Building and Methven, with the Fletcher Building price fall of 14% being the single biggest contributor to the index decline.  All cited the weak Australian housing market as a key factor, although the interminable delays in the Christchurch rebuild have not helped either.

The month saw a continuation of the globally-synchronised risk on/ risk off behaviour which has become prevalent in the last few years. This was evident in currency markets as well, with the A$ up 9% and the Kiwi 6% against the US$ and US bonds, the ultimate safe haven asset in recent months, being sold off aggressively.

There was no obvious catalyst for this rally in terms of better economic news or a clear resolution of the sovereign debt and banking problems which have worried markets for months. If anything, the news out of Europe suggests that a workable long-term solution remains as elusive as ever and recession unavoidable.

So why did markets rally? The best explanation seems to be that all the bad news was in the prices as we alluded to in last month’s newsletter. The size of the rally has relieved that oversold condition for the time being. Our optimism about the short term direction of markets in October was predicated on our assessment of the psychological state of the market at the time. With that behind us we are now agnostic about the outlook. From October’s trough to peak major markets like Germany, France and the United States all climbed over 20% -- the sort of behaviour which destroys bearish complacency, positions and balance sheets.

Unfortunately the speed of the rally in Australia was so swift we did not execute as well as we planned. After an initial foray which increased our equity weighting by 8% we waited for a pullback which never eventuated and missed reaching our initial target of a 15% increase. Fortunately our concentration on liquid large caps was validated by their subsequent performance. The size of the rally, the lack of a fundamental driver and the slew of earnings downgrades were sufficient incentive for us to take some useful trading profits in the last few days of October.  This means that the asset allocation which helped drive performance during the month is not reflected in our month end asset allocation summary.

The biggest single contributor to the fund’s performance came from one of our longest standing and most frustrating investments -- Transpacific Industries. The company finally acceded to the market’s demands for an enhanced balance sheet with an accelerated rights issue. We took up all our rights and bid aggressively for more shares in the bookbuild for renounced rights. The ordinary shares closed up 20% on the “theoretical ex rights price” and the Step Up securities which have been a core holding for years benefited even more with a 27% gain. The cumulative effect of all this was more than a 1% boost to the Fund’s return and a meaningful increase in our weighting in both securities at month end.

A significant new investment in Australia was Super Retail Group which had a capital raising to fund the purchase of Rebel Sports in Australia. We have always held the management of this company in very high regard and saw the equity raising as an attractive entry price to one of the few retail groups not seriously threatened by the internet or the recessionary conditions facing most Australian retailers.

The best performer in percentage terms in our New Zealand portfolio was Diligent Board Member Services which rose nearly 60% after revealing some stellar quarterly numbers. Largely as a result of its share price performance it is now 1.5% of the Fund.  In dollar terms our best performer was also our biggest NZ equity investment, Skellerup Holdings, with an 8.9% gain (after adjusting for the dividend).

Fortunately a small holding in Methven was our only exposure to those companies which downgraded earnings, while we benefited from a modest upgrade to Turners Auctions’ full year guidance.

We also participated in the Summerset IPO and , subject to pricing, expect to buy in to the upcoming Trademe IPO. We expect the Fund will continue to benefit from opportunities like these and the TPI recap and Supercheap capital raising.

During the month we once again hedged our Australian dollar exposure as the New Zealand dollar fell to levels near recent lows against our Transtasman neighbour.  This hedge ended the month about 1% out of the money.  As always, this is a position we keep front of mind and we will adjust it if events or price movements warrant a change in stance.

Investors will note that we now have an allocation to global equities. This is not a new position. It has arisen as a result of Cavotec moving its listing to Stockholm. Like Transpacific this has been a frustrating investment for us but we remain confident that ultimately the quality of the business and management will be reflected in the share price.

 

TOP 10 HOLDINGS AS AT 31 OCTOBER 2011
Genesis Capital bonds	5.2%
Skellerup	4.4%
Transpacific Step ups	3.5%
Transpacific Industries	3.4%
Telecom	3.3%
Telstra	3.2%
GPG Capital Notes	3.0%
Super Retail Group	2.7%
Mainfreight	2.7%
BHP	2.6%

 

Aspiring Asset Management Limited
http://www.aaml.co.nz