Australian Equities (Long Short): K2 rises above the competition with an active approach

Active management of the fund, choosing the right assets at the right time and focusing on generating positive returns are the reasons behind the success of K2 Asset Management’s Australian Absolute Return Fund, according to the chief investment officer of K2 and senior portfolio manager, Mark Newman.

K2 took out the award for the Australian Equities (Long Short) category for 2009, trouncing more than 12 months of market volatility.

The fund has generated returns of 13 per cent year on year, nearly double the market average of 6 per cent, Newman said.

“We’re not geared, we’ve held high levels of cash during the months when the index has been negative, and then we increased our exposure in March up to ... 73 per cent in March, and we’ve been in the right sectors to participate in the recovery,” Newman said.

Those sectors included virtually no exposure to the banking and resources sector, as well as some handy stocks in JB Hi-fi and Wesfarmers, which strengthened the fund, Newman said. The fund has also been building up its exposure to the Westfield Group.

The manager is still watching the market closely, and would increase the fund’s weighting in the banking sector when the economy turns, Newman added.

The fund aims to return 15 per cent over a three to five-year cycle, and protects its clients’ capital. It will clock up 10 years of operation in the next six months.

The fund has a multi-portfolio manager structure, with each portfolio manager given a portion of the fund’s capital for investment, based on the manager’s experience and performance record.

Lodestar Capital Partners (Antares Lodestar) and Aviva Investors were also finalists in this category. John Morgan, portfolio manager for the Antares Lodestar Absolute Return Trust, said a well-defined investment process of stock selection and assessing the level of market exposure added value for clients.

“Our mantra is produce equity-type returns over the full investment cycle, with lower volatility,” Morgan said.

“The three pillars of our [investment] process are basically relative valuation, absolute valuation, and how the stock behaves in a trend sense.”

Antares Lodestar altered its investment process in November last year to deal with the market volatility, selling down stocks that weren’t trending up in price.

Aviva Investors’ High Growth Shares Trust has performed well in the current market with active management of its fund managers, and lengthy experience in funds management, according to portfolio manager Richard Dixon.

“One of the traits of the fund is that it’s actively managed, and we do try to take advantage of opportunities as they arrive and it is a market where you have to adapt quickly and react to circumstances as they change,” Dixon said.