What is a long/short to do?

Over the past few weeks we have had the pleasure of meeting with clients and friends of the firm around Australia and New Zealand. The turbulent and challenging final quarter of last year was of great interest to many, despite, or perhaps because, of the quick rebound in stock markets in the first couple months of this year. As we expected the light was also shone on the performance of long/short equity strategies over this period.

Unfortunately, there was a broad sense of disappointment from advisers and clients. This started with dismay that many long/short equity funds that had promised insulation from market downturns had performed even worse than the market when global equities declined 11 per cent (in Australian dollar terms) in the fourth quarter of 2018. It continued with head-shaking that many of these also did not participate in the 9 per cent upswing in January and February.

We hazard a guess that many of these funds were not only more heavily exposed to the market as markets were rising ahead of the October sell-off, but that they were also caught on the wrong side of non-fundamental rotations between sectors and countries that we had noticed. Finally, with the fear and pressure being felt by the end of the year we had noticed many managers head for the exits by reducing exposure which made it hard to perform well when equities gained in early 2019.

Fortunately, we were able to tell a more positive story about the performance of Montaka, our long/short strategy. By the time we entered the final calendar quarter Montaka’s net exposure had been lowered to 39 per cent because we identified increasing risks around US-China trade, persistently tight monetary policy, and stock prices that kept edging higher. This held the fund in good stead when these risks ultimately were repriced by markets in the October and December falls. Montaka protected significant client capital declining 6 per cent versus an 11 per cent fall in the broader market.

Then in December the US and China started to come together, the US Fed announced a pause in tightening, and stocks had become cheaper – 20 per cent or more cheaper since their peaks. We took the opportunity to add to positions in great businesses at bargain prices and deploy dry powder. Montaka’s net exposure to the market went above 60 per cent when the market finally recognised this by Christmas Eve last year, equities turned, and Montaka participated in much of the gains.

Over the full five-month stretch from the end of September 2018 to the end of February 2019 equity markets dived and even after a come-back were still down 2 per cent. On the other hand, Montaka protected capital, posted positive performance (up 1 per cent) and delivered a smoother journey on the way. It’s a short period to view performance, but we look at this as a microcosm of what Montaka can achieve. As we repeat this through cycles the value to our clients will compound.

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To learn more about our Montaka strategy, please click here.

Our Funds

The Montgomery Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Global Fund

  • GLOBAL
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Alpha Plus Fund

  • GLOBAL
  • A market neutral strategy
  • From $50,000
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Montaka Global Access Fund

  • GLOBAL
  • Access long/short global equity portfolio
  • From $50,000
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Montgomery Global Equities Fund (ASX:MOGL)

  • GLOBAL
  • Concentrated high conviction equities
  • No minimum investment - see your broker limits
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Montgomery Small Companies Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
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Our Funds

Concentrated High Conviction Equities

Listed

Montgomery Global Equities Fund (ASX:MOGL)

Global
Available on the ASX as an Exchange Traded Managed Fund, invests in 15 to 30 quality global businesses for long-term capital growth with a target distribution yield of 4.5% per annum. Mirrors the strategy of the Montgomery Global Fund.
Unlisted From $25,000

Montgomery Global Fund

Global
Invests in 15 to 30 quality global businesses for long-term capital growth. Priced daily. Mirrors the strategy of the Montgomery Global Equities Fund (ASX:MOGL).
Unlisted from $25,000

The Montgomery Fund

Australia/NZ
Aims to provide long-term growth and income by investing in 20 to 40 high-quality Australian and New Zealand businesses trading at attractive valuations. Priced daily.
New Fund

Montgomery Small Companies Fund

Australia/NZ
Aims to provide long-term growth by investing in 30 to 50 high quality, undervalued, Australian and NZ small and emerging companies with strong growth potential. Priced daily.
Unlisted from $1 Million

The Montgomery [Private] Fund

Australia/NZ
Seeks to deliver absolute returns from a portfolio of high-quality Australian and New Zealand businesses. Capital preservation is paramount. By invitation only.

Alternate Equity Strategies

Unlisted from $50,000

Montgomery Alpha Plus Fund

Global
Aims to generate positive returns in both rising and falling markets. Invests in 80 to 180 global businesses expected to deliver above-average returns, while selling short a similar-sized portfolio expected to deliver below-average returns. Priced daily.
Unlisted from $50,000

Montaka Global Access Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. Priced monthly. Provides retail investors access to the Montaka Global Fund.
Unlisted From $1 Million

Montaka Global Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. By invitation only.