Dexion Absolute Limited (the
“Company”)
November Final Net Asset Values
Ordinary Shares
The final net asset value of the Company’s Ordinary Shares as of
30 November 2015 is as follows:-
Share Class |
NAV |
MTD
Performance |
YTD
Performance |
GBP Shares |
192.14p |
+0.25% |
+4.49% |
2011 Redeemed Shares
The net asset value of the Company’s 2011 Redemption Portfolio
was $1.39 million as of 30 November 2015. This was attributed to the
Redeemed Share class as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
US$ 0.0250 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2012 Redeemed Shares
The net asset value of the Company’s 2012 Redemption Portfolio
was $3.24 million as of 30 November 2015. Shares redeemed pursuant to the
2012 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
US$ 0.0249 |
USD Shares |
US$ 0.0273 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2013 Redeemed Shares
The net asset value of the Company’s 2013 Redemption Portfolio
was $3.89 million as of 30 November 2015. Shares redeemed pursuant to the
2013 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
US$ 0.0294 |
EUR Shares |
US$ 0.0360 |
USD Shares |
US$ 0.0414 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2015 Redeemed Shares
The net asset value of the Company’s 2015 Redemption Portfolio
was $55.62 million as of 30 November 2015. Shares redeemed pursuant to the
2015 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
US$ 2.9109 |
EUR Shares |
US$ 2.9767 |
USD Shares |
US$ 4.0656 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
These valuations, which have been prepared in good faith by the
Company's administrator, are for information purposes only and are
based on the unaudited estimated valuations supplied to the
Company's investment adviser, Aurora Investment Management L.L.C.
(“Aurora”), by the administrators or managers of the Company's
underlying investments and such valuations may not be considered
independent or may be subject to potential conflicts of interest.
Both weekly manager estimates and monthly valuations may be
produced as at valuation dates which do not co-incide with
valuation dates for the Company, may be based on valuations
provided as of a significantly earlier date, may differ materially
from the actual value of the Company's portfolio and are unaudited
or may be subject to little verification or other due diligence and
may not comply with generally accepted accounting practices or
other generally accepted valuation principles. The Company's
investment adviser, investment manager and administrator may not
have sufficient information to confirm or review the completeness
or accuracy of information provided by those managers or
administrators of the Company's investments. In addition, those
entities may not provide estimates of the value of the underlying
funds in which the Company invests on a regular or timely basis or
at all with the result that the values of such investments may be
estimated by the Aurora. Since 1 April
2013 the Company has been transitioning to becoming a feeder
fund of Aurora Offshore Fund Ltd II ("AOFL II"). AOFL II's
investment manager is also the investment adviser to the Company
and so valuations of the Company's investment in AOFL II may be
subject to potential conflicts of interest. As at 1 December 2015 approximately 96.51% of the
Continuing Portfolio (by NAV) was invested in AOFL II. The value of
designated investments as at 1 December
2015 equates to approximately 1.62% of the Continuing
Portfolio NAV. Certain other risk factors which may be relevant to
these valuations are set out in the Company's prospectus dated
17 October 2007 and the Company's
circulars dated 15 April 2011,
5 April 2012, 22 February 2013, 27 May
2013 and 26 August 2015.
Net asset values for Redeemed Shares include only those costs
and expenses attributable to Redeemed Shares which have been
accrued as at the relevant NAV date.
Monthly Portfolio Review
Investment adviser portfolio
outlook
Heading into year end, we note the outperformance in 2015 of
equity markets versus high yield credit as credit investors view
markets more cautiously while the S&P 500 Index is near
all-time highs. Interestingly, 2015 is on track to be the first
year since 1994 during which the Merrill Lynch High Yield Index
finishes the year negative, while the S&P 500 Index finishes
positive.
We are actively monitoring these markets to determine whether
increasing spreads in high yield bonds are foreshadowing equity
market weakness or creating an attractive entry point in select
credit instruments. Utilising our top-down framework for
evaluating strategy allocations, in conjunction with our annual
Blank Sheet Review, we have observed both impending headwinds in
credit markets and relatively full valuations in equity markets. As
a result, we have reduced the Long/Short Credit strategy allocation
target, while re-orienting our Long/Short Equities strategy towards
managers employing a low net approach, as we expect these managers
to perform well in a more volatile market that rewards deep,
company-specific fundamental research.
Altogether, we are confident that our strategy allocation shifts
made this year will position the portfolio to succeed in a less
certain and more fully-valued market environment.
In focus³
Given recent headlines relating to the corporate credit markets,
we thought we might share our views on the matter.
For some time, Aurora has recognised that credit focused hedge
fund strategies face challenges from the impending headwinds of
rising rates and liquidity in credit markets. Utilising our
top-down strategy allocations framework in conjunction with our
annual Blank Sheet Review process, these factors have resulted in a
significant reduction in our Long/Short Credit strategy allocation
target in most portfolios over the past several years.
Furthermore, our credit specialists in their own portfolios have
also been opportunistically investing in other asset classes in
recent years as they reduced credit exposure dynamically in the
face of these market shifts. For AOFL II, total look-through
exposure to credit is modest compared to historical norms, with net
credit exposure at approximately 7% of NAV as of 1 November 2015. By comparison, net credit
exposure was approximately 8% of NAV as of 1
November 2014 and 15% of NAV as of 1
November 2012.
Given our experience investing in credit strategies successfully
over nearly 28 years, we have grown increasingly vigilant with
regard to liquidity mismatches in the asset class. In the post-2008
environment, Dodd-Frank regulation has severely limited the amount
of credit inventory that a bank may hold on its balance sheet,
inhibiting what had been a market cushion during previous credit
sell-offs. In addition, the “mirage” of daily liquidity in many
sizeable credit-oriented ETFs and mutual funds is particularly
concerning given the difficulty in trading certain securities (high
yield bonds and bank loans) in challenging, less liquid market
environments. As such, we have recognised that the microstructure
of credit markets created a risk of more extreme drawdowns.
We are pleased with our credit-focused managers’ navigation of
the challenging market environment and preservation of capital (for
reference, AOFL II’s Long/Short Credit strategy has returned +1.67%
year-to-date through November). Furthermore, our credit-focused
managers have not reported meaningful redemption pressures or
liquidity issues.
We do anticipate that the current credit market environment,
while extremely uncertain and volatile, could create compelling
opportunities for managers that have largely abstained from risky
credits in the face of credit market uncertainty and built up cash
balances in expectation of a sell-off. We continue to closely
monitor the opportunity set, including the liquidity backdrop, in
credit markets to identify a potential broader opportunity to
invest actively and offensively in this segment of the market.
Market
overview
- In November, the prospect for monetary policy divergence
re-emerged as the likelihood of a December rate hike by the US
Federal Reserve increased (which has since occurred) while the
European Central Bank suggested more stimulus could be
imminent. Together, this caused US treasury yields to rise
while eurozone yields fell.
- Consequently, the US dollar rallied versus major currencies,
causing equity markets with less dollar-sensitivity, such as US
small caps, to perform well relative to emerging markets, which
suffered.
- US equities gains were led by financials companies, which are
likely to benefit from a higher interest rate regime, while the
higher yielding and commodity-sensitive utility and energy sectors
sold off.
- High yield bonds were generally weaker due in part to the
prospect of higher rates and uncertainty related to credit market
liquidity.
- Commodities experienced another meaningful sell-off, led by
crude oil, with precious metals such as gold and silver also
finishing the month lower.
Long/short credit¹: +0.26%
- Gains were largely attributable to short currency exposure and
long equity exposure, while managers generally side-stepped the
sell-off in high yield corporate credit.
- More specifically, short exposure to the euro, the Chinese
renminbi and the Saudi riyal contributed positively, as did short
exposure to US treasuries and eurodollar futures.
- Within equities, single name holdings and index exposure
yielded profits. However, as weakness in the oil markets
continued, long exposure to energy-related securities offset a
portion of profits.
Long/short equities¹: +0.25%
- The Long/Short Equities strategy continued its positive
performance in November, as the geographic specialists produced the
largest gains.
- The geographic specialists saw gains emanate from long
positions in the industrials, healthcare and technology sectors.
Notably, individual contributors included long positions in a
Denmark-based healthcare company,
a Dublin-based information
services firm, a US-based internet media company and a Swiss
agribusiness.
- The sector specialists also experienced a positive result, as
gains largely stemmed from a long position in an oilfield services
firm, several short energy positions, and long positions in select
pharmaceutical companies and hospitals. Short positions in
technology, media and telecommunications companies offset a portion
of the gains.
- The generalists saw losses due to weak results from long
holdings in consumer and media-related companies. A long holding in
a renewable energy company was a large individual detractor.
Conversely, long holdings in the technology sector, including a
Chinese internet company and a software design and services
companies, helped to offset a portion of the losses.
Opportunistic¹: +2.27%
- Gains emanated predominantly from long equity holdings within
the healthcare and consumer discretionary sectors. Holdings in a
biopharmaceutical company contributed notably as the company moved
further along in its clinical trial process for a new
drug.
- Holdings in an enterprise software company that reported
earnings that exceeded expectations also were additive.
- As oil markets continued to weaken during the month, losses
from long energy exposure were partially offset by short energy
equity and commodity exposure.
Macro¹: +0.97%
- Profits were largely driven by short currency exposure and long
equity exposure, while offsetting losses stemmed primarily from
exposure to energy-related commodities and fixed income.
- Short exposure to the euro, the South African rand, the
Japanese yen, the Chinese renminbi, the New Zealand dollar and the Australian dollar
was profitable.
- Furthermore, long equity exposure – primarily to Chinese
technology companies – yielded gains.
- Conversely, as oil markets continued to weaken during the
month, exposure to gasoline and Brent crude time spreads
detracted.
Portfolio hedge¹: +0.16%
- The Portfolio Hedge strategy generated a small gain as negative
performance from the short sellers was exceeded by gains from the
tail-risk opportunities investments.
- Short sellers experienced losses from short equity positions in
the technology and healthcare sectors, while gains from short
holdings in the consumer sector helped offset losses.
- The tail-risk opportunities investments produced a robust
return for the month, as a short position in a media company
expressed through cash bond shorts and credit default swaps as well
as short positions in the euro and Japanese yen, were large
contributors.
Event driven¹: -0.33%
- The Event Driven strategy experienced a modest loss in
November, primarily driven by negative results from the special
opportunities investments.
- Among the special opportunities investments, equity positions
in a renewable energy company focused on emerging markets, an
aerospace components and systems supplier/manufacturer and a
midstream natural gas company were the largest detractors.
Conversely, an investment in a Nordic online classified ads
business was the largest contributor.
- Within our traditional manager allocations, losses from long
positions in consumer, healthcare and media-related companies
exceeded gains from long positions in the financials, materials and
technology sectors.
Strategy |
Allocation
as of 1 December²
(%) |
Number of hedge funds as of
1 December² |
Performance by
strategy¹ (%) |
|
|
|
November |
YTD |
Long/short credit |
24 |
3 |
+0.26 |
+1.67 |
Event driven |
19 |
4 |
-0.33 |
-2.03 |
Long/short
equities |
31 |
11 |
+0.25 |
+4.54 |
Opportunistic |
7 |
3 |
+2.27 |
-5.29 |
Macro |
12 |
6 |
+0.97 |
-2.74 |
Portfolio hedge |
7 |
2 |
+0.16 |
+3.34 |
Total |
100 |
29 |
|
|
¹Effective 31 May 2011,
31 May 2012, 28 February 2013 and 30
September 2015, DAL created separate redemption portfolios
for redeeming shareholders from the EUR (for 2011, 2012, 2013 and
2015), USD (for 2012, 2013 and 2015) and GBP (for 2013 and 2015)
share classes. All information presented herein is for the
Continuing Portfolio only. Strategy returns are presented for AOFL
II, are calculated in USD, are net only of the fees and expenses of
the underlying managers and are gross of the fees of DAL’s
investment manager and investment adviser and the operating
expenses of DAL and AOFL II. The investment adviser implements the
‘Modified Dietz’ methodology for calculating the DAL portfolio
hedge strategy returns, which takes into account the amount of time
an investment is held. Under unusual market circumstances, there
are certain limitations to the Modified Dietz methodology and under
such circumstances the investment adviser may modify, adjust or
apply a different methodology if it determines in its reasonable
discretion that doing so will more accurately reflect the rate of
return of the DAL Portfolio hedge strategy.
²Allocations are presented for the Continuing Portfolio and
reflect the allocations of AOFL II, which are based on 30 November 2015 results and 1 December 2015 capital allocations, net of cash
effect and including, for Portfolio hedge only, the delta-adjusted
exposure derived from option hedges, the notional value of futures
hedges, and dedicated notional gold exposure, if any. The Company
classifies all managers by reference to only one of the core
trading strategies provided in the chart (which include several
strategies whose nature is multi-strategy). In certain instances,
and over time, a manager may utilise multiple trading strategies.
Consequently, it is possible that the Company’s determination of a
manager’s primary trading strategy may change over time and may
differ from how others may classify such manager’s primary trading
strategy. Strategy allocations may vary over time. Numbers may not
sum to 100% due to rounding.
Manager count reflects the managers in AOFL II. For purposes of
determining manager count, the manager treats investments in
different hedge funds managed by the same manager using the same
strategy as a composite and does not include any “Excluded
Managers”. An Excluded Manager is any manager (1) for which the
Company has submitted a full redemption request or (2) that manages
only “Market Opportunities Investments” within the strategy. Market
Opportunities Investments represent an aggregation of a select set
of unique, concentrated, and opportunistic investments that may be
added to the Continuing Portfolio to benefit from compelling and
timely risk seeking and risk limiting investment opportunities. The
Company’s investment adviser classifies all of the Company’s
managers by reference to only one of the core trading strategies
provided in the chart (which include several strategies whose
nature is multi-strategy). In certain instances, and over time, a
manager may utilise multiple trading strategies. Consequently, it
is possible that the Company’s investment adviser’s determination
of a manager’s primary trading strategy may change over time and
may differ from how others may classify such manager’s primary
trading strategy.
³The In focus section of this report is for information purposes
only. Any opinion expressed in this report, including with respect
to the market events and potential investment opportunities that
may arise, is purely the opinion of the Company’s Investment
Adviser, may be speculative, and is subject to change without
notice. This report should not be considered investment advice or
relied upon as such. This report should be not be considered an
indication of the future investment decisions that the Company’s
Investment Adviser will make for the Company. Statements that are
made in this report that are not based on historical facts are
forward-looking statements. Although such statements are based on
the Investment Adviser’s current estimates and expectations, and
currently available competitive, financial, and economic data,
forward-looking statements are inherently uncertain. There can be
no assurance that the estimates and expectations made in connection
with any forward-looking statement will prove accurate, and actual
results may differ materially. The Investment Adviser makes no
representations or warranties regarding the accuracy or
completeness of the information included in this report and is not
liable in any way as a result of its use. Exposure information is
as of the specific dates. Please see the important information
included in the General Disclaimers and Endnotes section of AOFL
II’s exposure report, which can be found on Aurora’s secure website
at www.aurorallc.com.
Supplementary Information
Click on, or paste the following link into your web browser, to
view a full review of the Dexion Absolute Limited portfolio.
http://content.prnewswire.com/documents/PRNUK-3012151135-64EB_DAL_MPR_2015_November_CC.pdf