(Bloomberg) -- Australia’s second-best performing hedge fund is profiting from greater market swings during earnings seasons, saying investment bank research has failed to track the ups and downs of faster-evolving industries.
Jun Bei Liu, a portfolio manager at Sydney-based Tribeca Alpha Plus Fund, said the gradual retreat of equity research coverage by banks and brokerages combined with increased automated trading has created ever greater difference between the market pricing and her own views, said Liu, whose Tribeca Alpha Plus Fund generated nearly 19% returns in a year.
“The forecast dispersions have become huge in the marketplace,” said Liu, who adds that “juniorization” of research, including fewer analyst ratings updates have exacerbated the trend.
A JPMorgan Chase & Co. report dated March 1 showed that the earnings season in February was the most volatile for single stocks in the past 15 years in Australia.
The Alpha Plus fund manages about A$1.35 billion ($910 million), deploying a long-short strategy in Australian stocks. Among its top holdings: Goodman Group is up 32% as of Tuesday year-to-date, and Life360 Inc. is up 144%. Its smaller position A2 Milk Co. has jumped 35% during the same period.
As much as 70% of the Tribeca Alpha Plus Fund’s out performance relative to its benchmark happens during Australia’s semi-annual earnings season, said Liu.
For instance, Australia’s shortage of high-growth companies means investors pile on exposure to firms once they can demonstrate profitability, she said.
Brambles Ltd., the fund’s largest holding, surged almost 12% after its Wednesday earnings. For one of Australia’s largest companies, such a gap between expectations and result is a new phenomenon, according to Liu.
“A lot of consensus expectations are really waiting for the full year result period to upgrade, to change their numbers,” said Liu. “In the old days, that just wouldn’t happen for a large company to have big moves like this.”
Medical imaging firm Pro Medicus Ltd. had been one of the fund’s top five holdings due to an impressive and sustainable growth story. Shares in Pro Medicus closed up 7.2% when it reported earnings on August 14. Liu recently took some profits, adding she would still look to buy any pullbacks.
The fund also bet on family tracking app Life360 on the back of its customer conversion prospects, she said. The company’s stock soared 18% following results on August 9.
Liu’s fund measures its own research against that of sell-side analysts’ in the run up to earnings to “draw the conclusion where the return might be.” The fund has about 60%-70% of positions in long bets, while the rest are shorts.
The Alpha Plus fund has been up 13% each year for the past decade, the second-best performing Australia-based strategy for that period, according to data compiled by Zenith Investment Partners, a research firm.
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