Dexion Absolute Limited (the
“Company”)
December Final Net Asset Values
Ordinary Shares
The final net asset value of the Company’s Ordinary Shares as of
31 December 2015 is as follows:-
Share Class |
NAV |
MTD
Performance |
YTD
Performance |
GBP Shares |
189.44p |
-1.41% |
+3.02% |
2011 Redeemed Shares
The net asset value of the Company’s 2011 Redemption Portfolio
was $0.47 million as of 31 December 2015. This was attributed to the
Redeemed Share class as follows:-
Share Class |
NAV per Redeemed
Share* |
EUR Shares |
US$ 0.0085 |
* As adjusted for the payment for 2011 Redeemed EUR Shares of
US$ 0.011048 per Redeemed EUR Share
on 31 December 2015.
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 $1.62 million as of 31 December 2015. Shares redeemed pursuant to the
2012 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share* |
EUR Shares |
US$ 0.0124 |
USD Shares |
US$ 0.0137 |
* As adjusted for the payment for 2012 Redeemed EUR Shares of
US$ 0.005473 per Redeemed EUR Share
and Redeemed USD Shares of US$
0.006019 per Redeemed USD Share on 31
December 2015.
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 $2.01 million as of 31 December 2015. Shares redeemed pursuant to the
2013 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share* |
GBP Shares |
US$ 0.0151 |
EUR Shares |
US$ 0.0186 |
USD Shares |
US$ 0.0213 |
* As adjusted for the payment for 2013 Redeemed GBP Shares of
US$ 0.006136 per Redeemed GBP Share,
Redeemed EUR Shares of US$ 0.007524
per Redeemed EUR Share and Redeemed USD Shares of US$ 0.008646 per Redeemed USD Share on
31 December 2015.
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 $54.91 million as of 31 December 2015. Shares redeemed pursuant to the
2015 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
US$ 2.8734 |
EUR Shares |
US$ 2.9384 |
USD Shares |
US$ 4.0133 |
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 January 2016 approximately 99.26% of the
Continuing Portfolio (by NAV) was invested in AOFL II. The value of
designated investments as at 1 January
2016 equates to approximately 1.10% 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.
Immediately following the payments made on 31 December 2015 from the 2011 Redemption
Portfolio, the 2012 Redemption Portfolio and the 2013 Redemption
Portfolio and in determining all NAVs stated above, the Directors
have valued the designated investments held in the Company's
portfolios at 70% of the valuations reported to the Company as at
31 December 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
Uncertainty remains high entering 2016 with economic and
monetary policy divergence between the US, Europe, Japan
and China remaining in focus.
Market volatility will likely remain elevated until there is a
stabilisation of Chinese economic growth, a bottoming in
commodities prices, and further clarity on US, European and
Japanese interest rate policies. Against this backdrop we continue
to favour Long/Short Equities managers with less market exposure
who can extract alpha from security selection within and across
sectors. We also continue to believe that the Macro strategy stands
to benefit from increased market volatility related to global
economic divergence and central bank policy differentiation, and
can serve as an effective hedge during periods in which market
dynamics create a more challenging, micro-oriented, security
selection environment. The Portfolio Hedge strategy should serve an
important role as we enter a period that is likely to be punctuated
by heightened uncertainty and greater differentiation among
securities. A combination of both direct and derivative exposures
across equity, currency and fixed income markets presents a
compelling platform for constructing asymmetric hedges designed to
minimise portfolio losses during times of market stress. Despite
the near-term economic uncertainty, we expect corporate management
teams to continue to pursue value enhancing events and believe that
share price weakness across a number of sectors may create an
attractive backdrop for the Even Driven managers to add exposure to
high conviction opportunities. Finally, the allocation to the
Long/Short Credit strategy is expected to remain near the lower end
of its historical range as expectations of rising default rates,
coupled with lower market liquidity, have created a more
challenging backdrop for the strategy. We are actively monitoring
opportunities across the credit universe and stand ready to deploy
capital in the event that a favourable opportunity set emerges.
In focus³
In December, financial markets witnessed what was a long-awaited
moment as the US Federal Reserve (the “Fed”) raised interest rates
for the first time since 2006. Whether the 0.25% hike in the
Federal Funds target rate was more symbolic than substantive is
open for discussion. Many view the raising of rates as an
indication of the market entering a “new normal”. With the Fed’s
policy having been very accommodating since the global financial
crisis, it is easy to forget what markets were like before this
period of easy credit, abundant liquidity and government support
across many risk assets. We would like to provide a few thoughts
regarding the likely rising interest rate regime.
First and foremost, we have already begun to witness a steady
upward trend in realised volatility in equity markets, which began
ascending in the back half of 2015. Not surprisingly, realised
equity volatility has steadily increased as the artificial
suppression induced by Fed policy fades away. Second, a stark
contrast in interest rate policy has begun with the Fed hiking
rates while central banks in other developed economies, like
Europe and Japan, continue with monetary policy easing.
These diverging paths of central bank policy around the globe give
us optimism that pockets of currency and interest rate trading
opportunities will unfold as capital flows from one region to
another. We believe that the Fed’s tightening cycle has ushered in
a more judicious market psychology, whereby investors may prove
more discerning about the relative quality and value of risk
assets. In a market where the rising tide no longer lifts all
boats, underlying business fundamentals should resume as the key
driver of single-stock returns. This dynamic should improve the
return potential from stock selection strategies such as Long/Short
Equities and Short-Selling.
We would also like to briefly address what we are hearing from
our managers regarding their expectations for Fed action in 2016.
While opinions vary, a handful of our most skilled macroeconomic
prognosticators have noted that while the Fed has pencilled in four
rate increases in 2016, futures markets are currently pricing in
one or two. Managers have suggested that this difference in
expectation could signal complacency in the forecasts of futures
market participants. Furthermore, given the continued improvement
in US economic data, the potential exists that the market is
meaningfully mispricing the hiking cycle in the US, meaning large
adjustments in expectations could be in store as the year
progresses. If the market is indeed underestimating the Fed’s
hiking schedule, the resulting impact may mean further increased
volatility across asset classes, as well as potentially heightened
downside risk and increased dispersion in corporate credit and
equity markets.
Market
overview
- Global equity markets limped into year end as losses were seen
across most regions and sectors, with Europe exhibiting some of the weakest
performance, followed by the US.
- In the US, smaller-capitalisation equities generally lost more
than larger-capitalisation peers while energy equities fell on
declining prices of energy commodities. Conversely, consumer
staples and large-capitalisation healthcare stocks offered some
defense in an otherwise difficult environment as these sectors
experienced gains on the month.
- Within the fixed income space, the US Federal Reserve in
December announced a long-anticipated interest rate hike - the
first since 2006 - raising the Federal Funds target rate to 0.25%.
Naturally, this caused shorter-term US treasury yields to rise,
especially as the US Federal Reserve set expectations for
additional rate hikes in 2016.
- With the confluence of rising interest rates and widening
credit spreads, the US credit complex - including high yield,
investment grade, and leveraged loans - generated negative returns.
These headwinds were further exacerbated by news that a prominent
credit mutual fund was halting redemptions on account of there
being insufficient liquidity in credit markets.
- Currencies were mixed in December, with the US dollar weakening
against the euro and Japanese yen. However, the Chinese renminbi
continued to slide amid speculation that the People's Bank of
China intends to let the currency
weaken materially in 2016.
- Finally, commodities once again served as a key driver of
market performance during the month, led by tumbling prices in
crude oil and energy distillates. Similarly, precious metals
continued to struggle, led by gold and silver experiencing their
third consecutive year of negative returns.
Long/short credit¹: -1.54%
- Losses were largely attributable to the strategy’s long energy
exposure as oil prices continued to decline on the back of
oversupply concerns. Notable detractors included the bonds of
several exploration and production (“E&P”) companies, as well
as equity holdings in a liquefied natural gas company and an
E&P servicer.
- Long credit exposure to a New
York-based financial services company that filed for
bankruptcy added further to losses.
- Offsetting a portion of the losses during the month were equity
index hedges, as well as tactical exposure to currencies and fixed
income futures.
Long/short equities¹: +0.09%
- The strategy was generally flat for the month, protecting well
amid a sell-off in equity markets.
- The generalists produced gains from long holdings in
consumer-oriented companies and short investments in
technology-related companies.
- The sector specialists saw modest gains in December as profits
from positions in the energy and technology, media, and
telecommunications sectors outweighed meaningful losses from
positions in the healthcare sector.
- The bulk of the losses for the geographic specialists were
driven by long investments in industrials and European consumer
goods companies.
Opportunistic¹: -2.00%
- Losses emanated predominantly from long exposure to single name
credit and equity positions.
- Losses were led by holdings in a New
York-based financial services firm that was unable to avoid
insolvency and ultimately declared bankruptcy during the
month.
- Additional losses stemmed from holdings in a liquefied natural
gas company that experienced pressure from energy sector headwinds
and tax loss harvesting by investors.
- Long credit holdings in a for-profit education company and a
fabric retailer also detracted.
- Conversely, holdings in a biopharmaceutical company offset a
portion of the strategy’s losses as the market continued to digest
positive news related to a new drug trial. US equity market hedges
were also additive.
Macro¹: -1.20%
- Losses were largely driven by the strategy’s commodity and
currency exposure, particularly oil-sensitive exposure, as prices
declined due to oversupply concerns, and short exposure to the euro
following the European Central Bank meeting, which disappointed
investors.
- Long exposure to European corporate and sovereign credit also
detracted.
- Short exposure to the Chinese renminbi and short exposure to UK
and Dutch natural gas helped to mitigate losses.
Portfolio hedge¹: +0.98%
- The strategy yielded a positive return for the month driven by
profits from both the tail-risk opportunities investments and
short-selling sub-strategies.
- For the tail-risk opportunities investments, gains were driven
by a long volatility position in the Chinese renminbi, long credit
volatility positions, and a position designed to profit from
widening spreads in investment grade credit. Conversely, a short
position in the Japanese yen and a short position in the credit of
a media company detracted.
- The short-sellers benefited from short exposure to the consumer
and technology sectors, whereas exposure to the healthcare sector
proved costly.
Event driven¹: -2.82%
- This was the largest strategy loss in December, as both the
event driven managers and special opportunities investments yielded
negative returns.
- The majority of the managers delivered negative results, which
were largely attributable to long positions in financials, energy
and media-related stocks. Select long holdings in the
healthcare sector offset some of the losses.
- Among the special opportunities investments, equity positions
in a midstream natural gas company, a Norwegian online classified
ads company and a European bank were the largest detractors.
Conversely, an equity position in a renewable energy company was
positive during December.
Strategy |
Allocation
as of 1 January²
(%) |
Number
of hedge funds as of
1 January² |
Performance by
strategy¹ (%) |
|
|
|
December |
YTD |
Long/short credit |
11 |
2 |
-1.54 |
+0.09 |
Event driven |
14 |
4 |
-2.82 |
-4.77 |
Long/short
equities |
31 |
11 |
+0.09 |
+4.64 |
Opportunistic |
16 |
4 |
-2.00 |
-7.17 |
Macro |
15 |
5 |
-1.20 |
-3.90 |
Portfolio hedge |
8 |
2 |
+0.98 |
+4.54 |
Special opportunities
investments |
6 |
n/a |
n/a |
n/a |
Total |
100 |
28 |
|
|
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 31 December 2015 results and 1 January 2016 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. Prior to
1 January 2016, the Special
opportunities investments strategy was included as part of the
Event driven strategy. Effective 1
January 2016, the Special opportunities investments
allocation became a stand-alone strategy and is no longer a
sub-strategy of the Event driven strategy. Accordingly, total Event
driven performance includes Special opportunities investments
performance for the periods prior to 1
January 2016. These changes do not reflect any changes in
our underlying investment philosophy or manager selection process.
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
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http://content.prnewswire.com/documents/PRNUK-0302161357-6A3E_DAL_MPR_2015_Dec_CC.pdf