The Jaguar Australian Leaders Long Short Fund Limited was
established in 2003 by Glenn Rosewall and Robert Hunter. Jaguar
Australian Leaders Long Short Fund Limited is its flagship
fund. The fund is a long/short equity fund investing exclusively
in Australia. It was launched in March 2003 and was +17.3%
in 2003 and is +3.7% in 2004.
Glenn Rosewall is the managing director and chief investment
officer. Prior to Jaguar he was head of equities at Ord Minnett
Securities Limited and a trustee of the company's pension
- Could you explain your investment selection process,
specifically the MVR screening process? How quantitative
driven is it?
The Jaguar Australian Leaders Long Short Fund employs a
long/short equity strategy using its MVR investment
process to exploit pricing inefficiencies between related
securities. MVR, which stands for Momentum, Value
and Return, screens and ranks companies in the S&P/ASX100
based on these key quantitative factors.
This screening process is sequentially based, ranking stocks
first on Earnings & Price Momentum (M), followed by
Value (V) and then by Return (R).
Momentum, by analysing consensus earnings revisions
and share price changes over multiple timeframes;
Value by analysing price earnings ratios (absolute,
relative to history, and relative to the company's
Global Industry Classification);
Return by screening return on equity (ROE) and ROE
An optimiser is then used to screen for industry (GIC)
exposure before selecting the portfolio. Adjustments may
be made to the weightings applied to growth and value
factors depending upon the market cycle at that time.
Our process is therefore quite heavily quantitative-driven,
but a key point of differentiation of our process is the
qualitative overlay we apply to the stock rankings in
the portfolio construction stage.
- In which sectors are your screening process and management
visits showing the most earnings momentum? Do you think
these are the same sectors that will be the earnings leaders
for the 1H of 2005?
Sectors that the Jaguar Funds MVR process is currently
identifying as having the strongest earnings momentum
in the Australian market are Materials, Resources and
Industrials. This has been driven largely by continued
strong demand for commodities from developing economies,
especially China, and the robust domestic economy.
We expect the earnings momentum in these sectors to be
maintained for the remainder of 2004 and into early 2005.
As we move further into 2005, we expect global growth
and Chinese demand to moderate, and for these factors
to translate into consensus earnings downgrades, however
we see no immediate risks to earnings momentum.
What is the short availability for Australia? Specifically,
how many names can you short borrow, what is the general
price and how great is the recall risk?
The stock borrowing market for shares within the S&P/ASX300
is extremely liquid. Given the breadth and depth of this
market, we do not experience any difficulties in shorting
stocks within the S&P/ASX100, and our recall risk
is extremely low.
- The New Zealand market is at its 2004 year-to-date
high and the Australian market is just off its all-time
high. Will there be a correction shortly?
The Australian equity market, in contrast to most global
markets, has been very strong over the past six months,
recently hitting a new all-time high. We have seen solid
profit growth amongst a range of blue chip stocks that
has offset a long list of worries ranging from terrorist
threats, high oil prices and a slower global economic
growth. Despite this outperformance, we believe Australian
equities are still reasonably priced.
We expect the Australian market to continue to be well
supported by reinvestment of record dividend payouts and
continued strong inflows of superannuation money. A cooling
of interest rate expectations, as reflected by the flat
yield curve with Australian 10-year bonds at 6-month lows,
is also providing support. The continued strength in the
resources sector should also continue to underpin the
Given the above factors, we do not expect a significant
correction in the Australian market in the near future.
In fact, we expect the market to push forward to new highs
over the next six months.
- What is your view on the October 9th election in
Australia and how would the potential outcome affect the
The fundamentally bullish factors at play in Australia
will be unchanged, regardless of who wins our election
on 9 October. Given a remarkably large surplus, the main
risk will be whether we see a return to profligate spending
that has been promised by both sides in the election campaigning.
The re-election of the government seems unlikely to herald
any particular change in spending patterns or directions.
Under Labor, there would be greater spending in health,
education and welfare, though not a large proportion of
these economic sectors are listed on the Australian share
It appears that commodity demand (specifically nickel
and steel) from China has picked up again; have you seen
an increase in the sales outlook for Australian mining
and steel production companies?
The Australian share market could be described as being
at the middle stage of a classic sectoral boom, such as
the previous resources boom of the 70s and early 80s.
Prices are at or close to all-time highs in many commodities,
with the next round of iron ore sales tipped to be stronger
again. We are continuing to see upgrades to commodity
price forecast, which is feeding through to higher earnings
- What are your views on the direction the RBA will
take on interest rates for the next six months, and how
much would this affect equity prices in Australia?
We expect a further moderate increase in Australian interest
rates over the next six months. We do not expect higher
interest rates to affect equity prices significantly.
In our opinion, the bank sector valuations are relatively
attractive and we expect the materials sector to continue
to perform strongly.
- What is the likelihood of a sharp housing correction
in Australia, which could lead to a severe dampening in
consumer demand or a possible banking crisis?
We do not believe monetary policy settings implemented
by the RBA will cause a sharp housing correction. Although
we believe the residential property market is overvalued
relative to other asset classes, we expect moderate underperformance
of the sector to correct the yield imbalance rather than
a sharp correction.
The possibility of a banking crisis is, in our view, extremely
low. Banks began the process of tightening lending criteria
some time ago, particularly restricting lending to over-supplied
markets, such as inner-city residential units.
- How detrimental would a weakening Australian dollar
be to your offshore hedge fund?
We employ an active currency hedging programme that
aims to limit exposure to a weakening Australian dollar.
Typically, the exposure is hedged when the Australian
dollar is trading above purchasing power parity (PPP).
To date, this programme has been effective in capturing
upside in the AUD whilst limiting the downside risk.
How much interest is there for single manager hedge
funds from Australia-based investors?
Our flagship fund has been established for over 18 months,
during which time we have generated strong returns and
built confidence in our investment process. As our track
record builds, we are beginning to see a significant increase
in interest in our fund. We believe that this reflects
the increasing sophistication of Australian investors
and a general increase in demand for boutique managers
and alternative investment strategies.
We believe that strategies such as ours that aim to deliver
superior risk-adjusted return in all market conditions
will continue to attract significant inflows.
Jaguar Advisory Services Pty Limited
+61 2 9251 0840
+61 2 9251 0802