REPORT TO THE UNIT HOLDERS IN THE ASPIRING FUND FOR THE MONTH ENDED 30 NOVEMBER 2011
| Aspiring Fund | NZ50G | ALL Ords
Accumulation
Index (rebased
in NZ$) |
| Month November | -0.45% | -1.87% | -2.34% |
| Quarter to Date | 6.40% | -2.19% | 7.55% |
| Last 12 Months | 9.21% | 0.17% | -4.26% |
| Financial Year to Date | 1.68% | -4.93% | -14.79% |
| Annualised since PIE (1/10/07) | 8.38% | -6.20% | -3.60% |
The Unit Price as at 1st December 2011 was $1.6669.
The performance for the month of November was -0.45%% after all expenses.
Our asset allocation at the end of the month was approximately:
| New Zealand Equities | 20.7% |
| Australian Equities | 32.2% |
| Global Equities | 2.3% |
| Corporate Credit/Bonds | 18.8% |
| Cash | 26.0% |
The Net Asset Value of the fund as at 1st December 2011 was approximately $94,000,000.
November was another month dominated by the machinations in Europe, with political infighting, bureaucratic malingering and unrest in the populace all signs of the difficulty in achieving workable solutions to the severe problems facing the region.
We have written about the problems in Europe previously so will not repeat ourselves except to note semi failures in two European bond issues (Germany was only able to place 3.6B Euro of a targeted 6B Euro issuance, and Italy saw sharply rising yields and only average coverage ratios) was rightly something which worried investors.
In the first stages of the GFC the bond market was arguably more circumspect than the equity market in fretting about the then problems of bad debt and a banking system headed for crisis. Consequently, we and many others view the price action in bond markets as a reasonable forward indicator of likely real world developments.
Given this backdrop we again took some risk off the table during the month, with our equity weighting at month end a low 55.2%. We saw risk asymmetrically weighted to the downside due to the serious issue of potential sovereign default, a continuation of procrastination amongst European policy makers and the freezing up of the bank system following the failure of the German bond auction. We re-invested some of this cash in corporate debt (we have long held that it’s safer to lend to many corporates than to Governments).
The performance of -0.45% for the month was relatively pleasing against the -1.9% and -2.3% falls in the NZ and Australian markets. November also followed Aspiring’s 6.87% gain in October and previously we have noted that there is a trend for good months to be followed by worse relative performance as prices “revert to the mean”. We have currently hedged our Australian dollar position so our performance was not influenced by movement in the two currencies.
Our largest NZ equity exposure, Skellerup, had a good month at being up 4.6% in a falling market. Our significant positions in the two Transpacific securities in Australia were steady which was encouraging following significant gains the month before.
We managed to avoid the two largest contributors to the negative posting on the NZ exchange in Fletcher Building (-11%) and Contact (-5%) but generally many of our Australian holdings were hit by the widespread downdraft in that market.
Telecom split in two during the month, with the two new companies showing reasonable gains relative to the value of the previously amalgamated company. We sold out of Chorus completely on the first day of trading and have subsequently taken advantage of price weakness which we attribute to index changes in Australia by buying back in at much lower prices.
The Trade Me IPO closed to professional investors early in the month. We bid unsuccessfully. The price was set at the top end of the range and investors at that price were required to hold the shares in an unlisted/unmarketable state until mid December. While we understand the need for speed in the process we think the outcome was sub-optimal. Retail brokers were required to submit binding bids before they or their clients had seen a prospectus. We are told that demand from this group of investors, who were effectively bidding blind, was strong, leaving institutions short of stock. We will follow the secondary market with interest. Trade Me is a fine company, but at the top of the range it does not appear cheap versus global peers such as EBay and Google. In the prevailing environment we were wary of the significant “cost” of locking ourselves into a totally illiquid position for close to a month.
Post the end of the month there was a small ray of hope in terms of some policy action in Europe. Six of the major world central banks mounted a concerted action to provide liquidity to the banking system which had become frozen due to concerns over bank solvency in Europe.
Equity markets reacted very positively to this initiative. We are not convinced it is sustainable as the underlying problem of excessive developed world debt has not magically disappeared but the reaction does tell us a lot about investor sentiment and portfolio composition. Moves of this magnitude can only occur when the vast majority of participants are positioned for the opposite outcome.Our equity weighting at the end of November was consistent with a cautious view of the immediate outlook. Whilst we remain cautious, market behaviour is telling us the weight of money is in exactly the same boat.
One of the many advantages of being a small fund is that it gave us the ability to increase our equity weighting by 6% in a day. We did so, investing on both sides of the ditch in liquid large caps where we have the option of changing our mind at short notice. In the current environment that option has lasting value.
| TOP 10 HOLDINGS AS AT 30 NOVEMBER 2011 |
| Genesis Capital Bonds | 5.0% |
| Skellerup Holdings | 4.5% |
| Super Retail Group | 4.1% |
| Transpacific Step Up Hybrids | 4.0% |
| GPG Capital notes | 3.5% |
| Mainfreight | 3.3% |
| Transpacific Industries | 3.2% |
| BHP | 2.5% |
| Dexus | 2.4% |
| Silver Lake Resources | 2.3% |
Aspiring Asset Management Limited
http://www.aaml.co.nz