Key Takeaways
- • Lonsec warns financial advisers that long/short equity funds—both Australian and international—vary significantly in structure and should not be treated as direct substitutes, with critical differences in short exposure limits, cash levels, derivative use, and gearing across managers.
- • Six funds received Lonsec's highest "highly recommended" rating, including Acadian Global Equity Long Short Fund, Colonial First State Global Resources Long Short Fund, Goldman Sachs JBWere Global Flex Fund, and Platinum Asia, European, and International Technology Funds.
- • Eight additional funds received "recommended" ratings, while newly rated funds include 5 Oceans World Fund, Barclays International Share Partial Long/Short Fund, and K2 Asset Asia Fund (all rated "recommended"), and Deutsche/RREEF Global Opportunities Fund (downgraded from "investment grade" to "fund watch").
- • HFA International Share Fund and HFA Diversified Investments Fund have been placed on "fund watch" effective January 20, with Lonsec citing increased operational concerns regarding HFA Group; HFA Diversified Investments Fund was HFA Asset Management's largest fund as of June of the prior year.
- • Lonsec's sector review emphasizes that advisers must understand how they intend to utilize selected funds, given material operational and structural differences between managers in the long/short equity space.
Summary
Lonsec, Australia's leading research and ratings house, has issued a significant cautionary advisory to financial advisers recommending long/short equity funds, stressing that managers' strategies differ materially and should not be assumed interchangeable. The ratings firm's latest sector review of Australian and international long/short equity funds highlights critical structural variations across fund managers, including permissible maximum short exposure, cash positioning, derivative utilization, and leverage deployment. These differences fundamentally affect how funds behave in varying market conditions and necessitate tailored due diligence before implementation.
The Lonsec review resulted in a bifurcated rating distribution across the sector. Six funds earned the firm's highest accolade of "highly recommended," including the Acadian Global Equity Long Short Fund, Colonial First State Global Resources Long Short Fund, and Goldman Sachs JBWere Global Flex Fund for the global universe, alongside Platinum Asia, European, and International Technology Funds in the regional long/short equity category. A further eight funds received "recommended" ratings, indicating strong but secondary-tier endorsements.
New fund ratings introduced in this review included 5 Oceans World Fund, Barclays International Share Partial Long/Short Fund, and K2 Asset Asia Fund, all of which received "recommended" designations. The Deutsche/RREEF Global Opportunities Fund, initially rated "investment grade," has been downgraded to "fund watch" status, signaling heightened monitoring by Lonsec analysts.
Most notably, HFA International Share Fund has been placed on "fund watch" effective January 20, reflecting what Lonsec described as "increased operational concerns with the HFA Group." This downgrade extends to HFA Diversified Investments Fund, HFA Asset Management's largest fund as of June of the prior year, indicating systemic issues within the fund house that warrant close adviser attention. The ratings house's guidance underscores the critical importance of ongoing manager due diligence and the necessity for advisers to map fund characteristics directly to client investment mandates rather than relying on broad category assumptions.
The Lonsec review resulted in a bifurcated rating distribution across the sector. Six funds earned the firm's highest accolade of "highly recommended," including the Acadian Global Equity Long Short Fund, Colonial First State Global Resources Long Short Fund, and Goldman Sachs JBWere Global Flex Fund for the global universe, alongside Platinum Asia, European, and International Technology Funds in the regional long/short equity category. A further eight funds received "recommended" ratings, indicating strong but secondary-tier endorsements.
New fund ratings introduced in this review included 5 Oceans World Fund, Barclays International Share Partial Long/Short Fund, and K2 Asset Asia Fund, all of which received "recommended" designations. The Deutsche/RREEF Global Opportunities Fund, initially rated "investment grade," has been downgraded to "fund watch" status, signaling heightened monitoring by Lonsec analysts.
Most notably, HFA International Share Fund has been placed on "fund watch" effective January 20, reflecting what Lonsec described as "increased operational concerns with the HFA Group." This downgrade extends to HFA Diversified Investments Fund, HFA Asset Management's largest fund as of June of the prior year, indicating systemic issues within the fund house that warrant close adviser attention. The ratings house's guidance underscores the critical importance of ongoing manager due diligence and the necessity for advisers to map fund characteristics directly to client investment mandates rather than relying on broad category assumptions.
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