Are you protected against market risk?

Transcription

1 Are you protected against market risk? The Aston Hill Capital Growth Fund provides low volatility access to U.S. equities with a strong focus on downside protection. Since taking over management of the Aston Hill Capital Growth Fund, Portfolio Manager and Co-Chief Investment Officer Jeffrey Burchell has generated an annualized return of 13.2%, providing 83% of the returns of the S&P 500 with significant downside protection. HIGHLIGHTS: Experienced hedge fund manager running a long-biased, long/short equity mutual fund currently focused on small, mid and large cap U.S. equities Small, nimble, opportunistic fund Style and sector agnostic Use of options, cash and shorts to mitigate volatility Provides a way to defensively start allocating into U.S. equities. Low correlation to typical Canadian investor s portfolio with limited-to-no exposure to resource sector or Canadian financials Actively managed, non-indexer, largely currency hedged Strong complement to a discretionary advisory business Sold by way of prospectus with daily liquidity Inception Volatility 1 Mo 3 Mo 6 Mo YTD 1 Yr 2 Yr 3 Yr 5 Yr 10 Yr Aston Hill Capital Growth Fund 7.5% 0.7% 0.8% 4.8% 0.8% 5.7% 10.7% 10.7% 13.6% 4.5% 7.3% S&P 500 TR Index 11.4% -1.6% 1.0% 5.9% 1.0% 12.7% 17.2% 16.1% 14.5% 8.0% 8.3% Nov-2003 Performance is for Series A as of March 31, Inception for the Fund is November 30, The Fund s portfolio manager started managing the Fund in November Volatility is from onwards. The Fund s Benchmark is the S&P 500 Total Return Index. Total returns in local currency.

2 Contents Liquid Alternatives: Improving Portfolio Risk Management 1 Risk Management 2 1. Cash Used as an Asset Class 3 2. Use of Shorting 3 3. Actively Managing Currency 4 4. Use of Options 4 5. Diligent Sell Discipline 4 Low Volatility Returns 5 Downside Protection 6 Mutual Funds vs. Hedge Funds 8 Why Size Matters 9

3 Liquid Alternatives: Improving Portfolio Risk Management Liquid Alternatives currently make up the fastest growing category in the U.S., with inflows of more than US$40 billion in 2013, and another US$37 billion of inflows in Liquid alternatives essentially offer alternative-style investment strategies in a mutual fund structure. The term liquid alternatives marries the alternative strategies used by traditional hedge funds, with the liquidity and transparency of retail mutual funds. The resulting product can provide several benefits, most importantly of which are enhanced risk reduction and the potential to improve the risk-adjusted performance of a traditional portfolio. Packaged for the mainstream retail investor, the structure of liquid alternatives offers many advantages over hedge funds. These include decreased fees, daily liquidity, little to no paperwork, and a small purchase minimum. Structure Typical Mutual Fund/ Liquid Alternatives Typical Hedge Fund Purchases Daily, no paperwork Monthly, lots of paperwork Liquidity Daily Monthly Redemptions Daily, no notice required Monthly, with days notice Performance Fee None 20% of the fund s return Investor Type All investors Only accredited investors Purchase Amount $1,000 $25,000 In terms of investment strategy, liquid alternatives go beyond traditional long-only portfolio management strategies to use additional tools such as short-selling, derivative strategies including options (puts/calls) and forward contracts, and investing in private securities. Portfolio Management Tools Typical Mutual Fund/ Liquid Alternatives Typical Hedge Fund Shorting Options Privates Leverage... up to 20% 3... all strategies except writing naked calls 3... up to 10% 3 Ñ Ñ... not allowed 3 1 Advisers turn to alternative mutual funds on U.S. rate rise fears, Reuters (June 18, 2014). Flows to Liquid Alts Drop in December, End 2014 Up 10%, DailyAlts (February 16, 2015). 1

4 Risk Management In an article titled The Future of Asset Management published by the CFA Institute in February asset managers, pension consultants, and fund distributors in 30 countries managing assets of $25 trillion were asked how many systemic crises they expect over the next decade: 66% 2 or more! said Do you have shock absorbers in your portfolio? I d rather make less money than lose money! Jeffrey Burchell, Co-Chief Investment Officer and Portfolio Manager How is the Downside Protection Different in the Aston Hill Capital Growth Fund? Average Long Only Equity Fund Aston Hill Capital Growth Fund Good Stock Picking Good Stock Picking Cash Used as an Asset Class Active Currency Management Short Exposure Adds Alpha and Insulation During Market Sell Offs Put Buying Style & Sector Agnostic... And that s it?! = Shock Absorbers 2

5 Here are the top 5 ways the manager aims to preserve capital: 1. Cash Used as an Asset Class 2. Use of Shorting 4. Use of Options 5. Diligent Sell Discipline 3. Actively Managing Currency 1. Cash Used as an Asset Class The manager regards cash as an asset class and uses it as a tool to reduce volatility within the Fund. During times of market volatility, the manager will increase the cash weighting in the Fund to decrease exposure to the market. This also allows him to opportunistically deploy cash to take advantage of buying opportunities as the market rallies. Allocation to Cash vs. Performance $20,000 Percentage of Cash Aston Hill Capital Growth Fund S&P 500 Total Return Index 80% $19,000 $18,000 $17,000 70% 60% $16,000 $15,000 $14,000 50% 40% $13,000 $12,000 $11,000 30% 20% $10,000 $9,000 $8,000 10% 0% Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar Use of Shorting The manager uses shorts to hedge the portfolio in times of market uncertainty. The manager will short individual stocks he feels are overvalued and have weakening fundamentals not fully priced or recognized by the market; if he has a negative view on an entire sector or asset class, he can reflect this broader outlook by shorting an exchange-traded fund (ETF). Typically the short weighting within the portfolio will fluctuate between 3 15% depending on the current market environment. 3

6 3. Actively Managing Currency The manager s primary focus is on picking good stocks independent of currency. However, in order to dampen volatility the manager actively hedges between 35% - 100% of the portfolio depending on his current outlook. In general, the manager holds the view that the US$ will appreciate relative to the CAD$ Reduced USD exposure by increase hedging from 35% to 70% Increased USD exposure by decrease hedging from 100% to 85% Reduced USD exposure by increase hedging from 75% to 90% 1.17 Reduced USD exposure by increase hedging from 65% to 95% Increased USD exposure by decrease hedging from 85% to 75% Reduced USD exposure by increase hedging from 90% to 100% 1.02 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Appreciating USD 4. Use of Options 5. Diligent Sell Discipline It s like fire insurance for your house. I am not married to my stocks! Options (buying puts and calls) is like having home insurance and allows the manager to buy protection for the stocks in their portfolio. Options writing can also earn incremental yield. The manager aims to keep 5 10% of the portfolio protected by buying options. Puts provide a low cost way to protect capital Keeps the upside potential intact, but avoids material loss on the downside When a security approaches the Target Revaluation Level (down 7 10%), the manager immediately reviews the position and revisits why he liked the story If the story has changed: Sell the stock then revaluate Immediately setup a call with management and canvas analysts to see what changed If the story has not changed: Review the original analysis and review why he liked the story Decide if the valuation is cheap enough versus the industry and the market for him to buy more 4

7 Low Volatility Returns The Aston Hill Capital Growth Fund has been down more than 1% in one day only 5% of all its negative days, versus 24% for the S&P 500 Total Return Index: Jun. 1, 2011 Mar. 31, 2015 Volatility # of Negative Days >1% # of Negative Days >2% Aston Hill Capital Growth Fund 7.5% 23 3 S&P 500 Total Return Index 11.4% % Daily Total Returns Jun. 1, 2011 Mar. 31, 2015 S&P 500 Total Return Index Aston Hill Capital Growth Fund 4% 2% 0% 2% 4% 6% 8% Sep 11 Dec 11 Mar 12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar 15 The Fund converted from a closed end fund to an open end fund on May 27, 2011 and started pricing daily. Accordingly, the daily return analysis is for the above stated period. 5

8 Downside Protection The Fund has demonstrated limiting the downside risk during the S&P 500 s largest drawdowns: 100% of the time the Fund outperformed its benchmark in its negative months 47% of the time the Fund has generated positive returns when the benchmark sold off Date S&P 500 TR Index AH Capital Growth Fund Fund s Outperformance May % +12.4% +13.5% June % +1.2% +2.9% July % +0.2% +2.2% August % -1.8% +3.6% September % -2.9% +4.1% November % +2.0% +2.2% April % -0.1% +0.5% May % -1.2% +4.8% October % +0.3% +2.2% June % -0.4% +0.9% August % -2.3% +0.6% January % +0.1% +3.6% July % -1.1% +0.3% September % -0.1% +1.3% December % +1.2% +1.5% January % -0.6% +2.4% March % +0.7% +2.3% 6

9 In addition to protecting when the market has sold off, the Fund also has had a demonstrable track record of participating when the market has rallied:...versus the S&P 500 Total Return Index Nov. 1, 2010 Mar. 31, 2015 Up Capture Down Capture Correlation Beta Aston Hill Capital Growth Fund 31.9% -20.4% Up Capture - The Up Capture Ratio is a measure of the Investment s compound return when the Index was up divided by the Index s compound return when the Index was up. The greater the value, the better. Down Capture - The Down Capture Ratio is a measure of the Investment s compound return when the Index was down divided by the Index s compound return when the Index was down. The smaller the value the better. HOWEVER The Up Capture Ratio does not count the Fund s performance in months when the Index was down, but the Fund was up. This is how the Fund has generated 83% of the returns of its benchmark since the Portfolio Manager started managing the Fund in November

10 Mutual Funds vs. Hedge Funds A mutual fund can achieve all of the returns of a hedge fund, but without the volatility. Aston Hill Capital Growth Fund vs. Well-Known Canadian Hedge Funds Over the past three years, the Aston Hill Capital Growth Fund has delivered a strong risk adjusted comparable to hedge funds. Aston Hill Capital Growth Fund Polar Altairis Long/Short Fund Vertex Fund Picton Mahoney Long Short Equity Fund Dynamic Alpha Performance Fund $14,000 $13,000 $12,000 $11,000 $10,000 $9,000 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Total Cumulative Return Annualized Compound ROR Standard Deviation Sh arpe (1.5%) Correlation (S&P 500) Beta (S&P 500) Alpha (S&P 500) Aston Hill Capital Growth Fund Picton Mahoney Long Short Equity Fund 35.7% 10.7% 4.4% % 22.7% 7.1% 5.2% % Vertex Fund 27.0% 8.3% 7.4% % Polar Altairis Long/ Short Fund Dynamic Alpha Performance Fund 17.2% 5.4% 4.3% % 20.1% 6.3% 5.8% % 3 year Risk/Reward Analysis ending Mar. 31, Performance for competitor funds is from Morningstar. 8

11 Why Size Matters Smaller does not mean riskier, it means more opportunity! Experts agree that size reduces performance There has been a considerable amount of non-sense written on this topic. I believe that every professional investor knows that it is an ironclad law that size reduces outperformance, but I also understand the investment guild s vested financial interest in muddying the water. - Jeremy Grantham, Chairman, GMO So would you rather be invested in a 2 billion dollar fund, or a 200 million dollar fund? Trading liquidity is not an issue for a smaller fund... Advantages of a smaller fund: A smaller fund can buy smaller market cap issues with ease BUT, smaller does not mean riskier! A smaller fund can easily trade without being a significant amount of daily trading volume... 9

12 DISCLAIMER All performance information is as of March 31, 2015 and is for Series A of the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Source: RBC IS, Bloomberg, PerTrac. Contact your Aston Hill Sales Team: 77 King Street West, Suite 2110, PO Box 92 Toronto, ON M5K 1G8 Tel: 1-(800) or (416) / funds@astonhill.ca /