Opal Market Neutral Fund

The Opal Market Neutral Fund aims to deliver consistent, risk-adjusted, absolute returns, which are uncorrelated with the broader equity market and all other asset classes. We target consistent and stable returns with low volatility and minimal drawdowns. Our returns are purely alpha and not leveraged to equity market movements (beta). 

Risk management is at the core of our process, guiding our approach to preserving capital while seeking to capitalise on market opportunities by implementing a carefully crafted and disciplined risk management framework.

As a market-neutral fund, the success of the Fund is determined by the appropriate selection of securities by Opal. Opal seeks to generate positive returns in all market environments, regardless of whether markets are rising, falling or moving sideways. This significantly differs from traditional ‘long only’ funds, which rely on an underlying rise in the broader equity markets.

The Fund invests in long and short positions in predominantly Australian listed securities, whilst maintaining a market neutral structure. The Fund is an active, high conviction fund, with a primary focus on bottom-up fundamental stock selection. Opal does not have a value or growth bias, and instead focuses on generating returns on a consistent basis, irrespective of what style bias a company might fit into. Opal also firmly believes that there is a price for everything, and that the quality of a company changes over time.

Opal invests using an in-depth and comprehensive research process, which brings together fundamental analysis, by utilising numerous information sources and data feeds; and employing technical analysis. However, unlike traditional long-only managers, Opal employs a catalyst driven approach when timing the purchase or sale of shares, rather than utilising a buy and hold approach. Opal also maintains a regular company visitation schedule in helping it to identify investment opportunities.

The investment strategy does not generally involve the use of derivatives. However, the Fund may utilise derivatives, such as index futures, from time to time to manage risk or gain investment exposure if the Investment Manager believes this to be in the best interests of Unitholders. In order to maximise investor returns, Opal will aim to take into consideration franking credit benefits that can be passed through to Australian investors.

The Fund invests in predominantly Australian listed securities, with a significant skew towards large and mid-cap securities, which bolsters the liquidity of the portfolio.

In a market neutral strategy, Opal constructs two portfolios; a long and a short portfolio of approximately equal value. Both the long and short portfolio are comprised of around 20 to 30 positions each. Therefore, the Fund holds generally around 40 to 60 positions at any time.

The long and short portfolios are constructed bottom-up from individual investment ideas. The weighting of each investment in the portfolio is correlated with the level of conviction around individual investment ideas and the risks associated along with liquidity and size considerations.

Investment ideas emerge from detailed analysis of all the major industries that make up the Australian share market. Sector weights in the long and short portfolios are not balanced and many vary. These active sector skews reflect the views that emerge from Opal's investment ideas as well as Opal's broader macro views. This enables Opal to add alpha through both security selection and sector allocation.

Opal normally constructs the portfolio to include both mispriced long and short positions, and therefore both should generate alpha as this mispricing corrects over time. Opal does not pursue a deliberate pairs trading strategy. While some natural trades will be entered into if they make sense, it is by no means necessary. Opal uses pair trades at times when Opal wishes to isolate a precise company insight and remove unintended risks. For example, pairing two banks stocks together allow Opal to isolate operation insights and minimise risk from the sector moving in any particular direction.

In order to maintain market neutrality, the Fund targets a net exposure (i.e. longs minus shorts) of generally no more than +/- 10%. The Fund typically maintains gross exposure (i.e. longs plus shorts) of around 150% to 250%, and generally no more than 300%. Market neutrality is usually achieved using single stock exposures, however, index futures may occasionally be used if necessary.

This document is intended for general information of wholesale clients only. This document should not be passed on to any retail clients within the meaning of the Corporations Act 2001 (Cth).

Any use, disclosure, reproduction, distribution or copying of the information in this presentation is unauthorised and strictly prohibited.

Although the statements of fact in this presentation have been added from and are based on sources that Opal Capital Management (Opal) believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions and estimates in this document constitute Opal’s judgment as of the date of this presentation and are subject to change without notice.

Opal is not providing any general advice or personal advice regarding any potential investment in any financial products within the meaning of section 766B of the Corporations Act. No consideration has been made of any specific person’s investment objectives, financial situation or needs. You should obtain a copy of the Information Memorandum and consider the risks and disclosures of the Fund for your circumstances. The provision of this presentation is not and should not be considered as a recommendation in relation to an investment in any entity or that an investment in any entity is a suitable investment for any specific person.

Recipients should make their own enquiries and evaluations they consider appropriate to determine the suitability of any investment (including regarding their investment objectives, financial situation, and particular needs) and should seek all necessary financial, legal, tax and investment advice.

Opal, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this presentation, or for any negligent misstatements, errors or omissions.