How much does Aitkin Investment Management actually have under management?

Aitkin Investment Management (AIM) is an interesting beast, it was only started in July last year by former stock broker Charlie Aitkin. It’s a global absolute return fund that can go long or short and trade anything from stocks to commodities or currencies.

Back in June 2015, Aitkin made the following comments regarding the amount of money that he thought AIM would be starting with based on a $150 million investment by Kerry Stokes:

Too many [funds] start without enough money and they have to punt the fund to get a performance fee to pay the school fees."

"It means I can sit here for the first few months and assess what we are going to do. I don't have to go out and play 20/20 cricket. I can get off the mark with a single. That's how you can play when you have a proper amount of capital."

Of course, it’s always possible to get out for a duck! But perhaps a bit worryingly, the article in which those comments appeared also referred to Aitkin playing around with a model portfolio:

Aitken has been running a model portfolio that he admits is a bit "like being in the cricket nets before you go out to play" but is helping to get his eye in before he heads out to bat.

I raised an eyebrow when I read this, model portfolios are usually reserved for those who have never traded real money or are experimenting with financial instruments with which they are not familiar.

Will Glasgow reported in the Australian Financial Review on 1 March 2016 that:

AIM was billed as a Kerry Stokes backed $300 million fund – or at least it was until the Stokes Family changed its mind and decided against committing $150 million to the fund last year in curious circumstances.

We are left to wonder why the $150 million was not committed, but also to ponder how much AIM raised on the back of that now non-existent $150 million in funding from Stokes and how much of that money has been retained given the withdrawal by Stokes.

At any rate the funds under management are likely to be quite small. Unfortunately for AIM, its inception also coincided perfectly with a rout in global equity markets and perhaps Charlie may be left having to "punt the fund to get a performance fee".

Charlie doesn’t come across as a modest type, on AIM's site we are told:

Charlie Aitkin, the Chief Investment Officer, has more than 22 years financial markets experience and is considered one of Australia’s leading macroeconomic forecasters and stock pickers.

He is the author of the “Ringing the Bell” newsletter and previously the “Under the Southern Cross” newsletter. He is an expert contributor to the Switzer Super Report and, previously, Alan Kohler’s Eureka Report. He appears frequently on Australian and global finanical media as an expert on Australian equities and global macroeconomic strategy.

Sitting back as a broker and picking stocks or writing for newsletters is very different to having serious skin in the game. And Aitkin will find this out very quickly.

Personally, I've never met a stock broker in my life who knew how to pick stocks (and I know I sound like the late multi-millionaire investor Charlie Viertel who said the same thing 26 years ago, but it's still truer than it’s ever been). The whole profession is somewhat of an anachronism in the 21^st century.

AIM has made two rather interesting appointments.

Firstly, Aitkin's wife Ellie is an Executive Director despite her experience in funds management being rather meager (from what is described on AIM’s web site).

It’s never a good look to put spouses or other relatives in high level positions in your own organisation and you wouldn’t think that it’s inspiring confidence in potential investors. Personally, I view such things as red flags.

The second interesting appointment is Angus Wright as Portfolio Manager.

Angus Wright was previously (amongst many roles), a Portfolio Manager who was jointly responsible for the management of the Searchlight Asia Pacific Fund (which launched in September 2010). This fund was part of the failed Mathews Capital. I raised many concerns regarding Mathews Capital prior to its collapse (you can read that article here).

Once again, without casting any aspersions on anyone, in terms of market perception, a former Portfolio Manager for a failed outfit may not be the savviest pick for a brand new organisation. Good traders who worked previously at failed organisations are fine for established players who have a sound record behind them and plenty of funds under management, but it’s a more risky pick at a new fund with no runs on the board (to continue Aitkin’s endless cricket metaphors).

It will be very interesting watching how this self-appointed "leading stock picker" performs.

It’s Official: Business Spectator & the Eureka Report are worthless

On 9 February, the Australian Financial Review stated that Newscorp had reportedly written down the value of Business Spectator and the Eureka Report to zero (page 45 of the printed edition).

 

When Newscorp paid close to $30 million for this business in 2012, I made the following comments on this blog:

 

“The news on Wednesday that Newscorp had paid just under $30 million for Australian Independent Business Media (AIBM), a company majority controlled by Alan Kohler, Mark Carnegie, John Wylie and Eric Beecher was nothing short of astonishing.”

 

“Newscorp doesn’t understand the online world and has lost vast amounts of money on previous investments such as MySpace. They will watch most of their $30 million for AIBM disappear too.”

 

“There has been talk that Newscorp will use Business Spectator stories in The Australian and also put the site behind a pay wall. I will tell Newscorp’s Kim Williams right now that you cannot successfully put marginal “brands” behind pay walls, because when you do, 90% of your readership will evaporate.”

 

You can see the full article I wrote at the time here: http://thestockscribe.blogspot.com.au/2012/06/alan-kohler-takes-advantage-of.html

 

It now seems that what I said has come to pass.

 

While $30 million is a drop in the ocean for Newscorp, the decision by Newscorp executive Kim Williams to be so cavalier with shareholders’ funds is simply appalling. There was no valuation metric on Earth that could have been used to justify paying anywhere remotely near $30 million for this extremely mediocre business.

 

One of the reasons that I have been highly critical of Australian executives and their remuneration packages is because we see these kind of idiotic mistakes being made continuously and the people making the mistakes are being paid fortunes to make them.

 

I shouldn’t pick on Newscorp, there are so many examples of major strategic mistakes being made (how about Grant O’Brien’s decision to plunge Woolworths into Masters – its cost billions of dollars for Woolworths shareholders, but O’Brien gets to keep every cent he was paid for making such a harmful decision, a decision that has significantly damaged the reputation of one of the country’s preeminent companies, it doesn’t sound fair, does it?).

 

As for Kim Williams and Newcorp, they have been made to look like fools by the likes of Alan Kohler, Mark Carnegie, John Wylie and Eric Beecher.

The ASX lays another egg: The case for algorithmic trading

2015 was another poor year for the Australian stock market with the S&P 200 (excluding dividends, at time of posting this article) falling by 3.9% (after a return of only 1.1% in 2014).

The market’s current level is the same as it was back in April/May of 2006! This means that if you have been invested in an index fund over that period, your returns have only been dividends of perhaps 3-4% per annum. It’s a completely lost decade.

You have to feel sorry for people invested in super funds that are largely exposed to the Australian stock market because they are simply not going to have sufficient funds to retire on at those sorts of rates of return.

The commodities boom effectively concealed a lot of the weaknesses of the Australian market which are now becoming very apparent to all and sundry.

While the Australian market is fine for trading, I do have a number of issues with long-term investments in this market, namely:

1.    The market has very few quality companies;

2.    The corollary to the above is that there are a significant amount of listed companies that could only be described as absolute junk (how some of these companies were allowed to list is incomprehensible to me);

3.    The market is very heavily weighted to banks and resource companies – when these sectors do badly their weighting in the market all but ensures the All Ordinaries and S&P 200 will also do badly. You simply can’t allow your financial future to be beholden to the iron ore price and how people are feeling about a few large banks – it’s crazy;

4.    We compensate the executives of these listed companies with world class remuneration packages for (in many cases), absolutely mediocre (or worse) performances;

5.    There is a reasonably high level of insider trading that is very rarely prosecuted, the cases that have been prosecuted concern absolutely blatant breaches of the law by naïve individuals which made their detection very easy;

6.    Australian institutional investors are very skittish, they have absolutely no patience and their highly reactive trading often hurts the market (unnecessarily);

7.    A result of point 6 is that we now have a bi-polar market, we have a few “hot” sectors that people are willing to pay anything for and we have everything else that they want to avoid like the plague. You can only get growth from the “hot” (or faddist) companies, so everyone crowds into these companies, setting the stage for the inevitable bust;

8.    In common with many markets around the world, we have auditors giving a clean bill of health to some companies that are in dire financial circumstances. (All I can say is thank God for litigation funders for keeping both auditors and companies honest, because no one else is standing up for the shareholder in quite the way they do. It’s a very sad reflection on regulators that litigation funders often have to essentially do their job for them);

These days I don’t always expect to make large capital gains, I’m just looking to get a reasonable return through dividends.

The long-term buy and hold approach contrasts very starkly with my algorithmic trading. Some statistics for 2015 on my algorithmic trading are provided below:

 

Annual return	9.39%
Risk adjusted return	17.4%
Winning trades	64.3%
Losing trades	35.7%
Profit ratio of winning trades to losing trades	3.43
Sharpe ratio of trades	0.89

 The table only represents long trades (not shorts) and excludes any dividends received. The risk adjusted return is adjusted based on actual exposure to the market, which in this case was only 54%.

As you can see, it’s vastly superior to the index performance (or the index hugging fund managers).

The program responsible for the above performance is only 51 lines of code. One of the most important components of that code is the trend indicator.

Determining trend direction is notoriously difficult, I tried many different things (all unsuccessful) before somehow developing something that appears to work.

To give you an example, the last long trade for 2015 occurred on 24 June when Ansell (ANN) was bought at an average price of $24.74, this trade was closed on 21 July at an average price of $25.94, a profit of 4.85% (before brokerage) for 27 days (not exactly high frequency trading, but a good trade).

After this trade, the program stopped signalling any long trades, and this was just as well as the market took a very steep dive through August and is yet to recover.

As I write this, conditions are still not conducive for trading long. But that of course is the beauty of the long/short trader, you simply switch to shorting. When conditions change again to favour the long side, I will go back to trading long. I will occasionally have both long and short positions open, but this is rare for me.

I recently attended a presentation given by a long/short fund that has had some reasonable success over the years. The presenter put up a list of the top 10 ASX listed stocks by market capitalisation and said something like: “I feel very sorry for long only Australian fund managers, can you imagine trying to make a profit out of that?”

In global markets, the population growth and industrialisation that fuelled markets for the entire 20^th century will not continue to anywhere near the same extent and this is likely to render buy and hold strategies anachronous and further contribute to the rise of the algorithms.