NEWS
17 Mar 2023 - Hedge Clippings | 17 March 2023
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Hedge Clippings | 17 March 2023 With friends like Keating, Albo doesn't need enemies! This week saw former PM Paul Keating, the Labor Party's elder statesman, and in his day chief head-kicker of the Liberal Party, give an almighty serve to PM Anthony Albanese, his deputy and Minister for Defence, Richard Marles, and Foreign Minister Penny Wong. This was vintage Keating, except it seems he's become a grumpy old man. Once upon a time he mixed sarcasm and humour to make his point. This time it was pure bile, and all the more extraordinary as it was aimed at his own troops. With friends like that, who needs enemies? In our view it was also hypocritical of Keating to say of Penny Wong: "Running around the Pacific Islands with a lei around your neck handing out money, which is what Penny does, is not foreign policy. It's a consular task." For the record, below is a photo of the then PM wearing what looks like a cross between - we're not even sure how to describe it - and wearing a lei around his neck, back in the day when he thought he was the Messiah. An opinion of himself he obviously still holds. Both the photo above and Wednesday's verbal spew were of course theatrics, but what's apparent is that Xi Jinping's hand is seriously manipulating somewhere up the back of the Keating puppet. He seems to think China is blameless, faultless, and just a benign and growing power in the Pacific, and around the globe. Forget human rights abuses, forget the facts, forget playing the ball - play the man, or in this case the woman. And when Keating was asked a question he didn't want to answer - by a young (female) journalist - he used the old get-out-of-jail put down response: "the question is so dumb, it's hardly worth an answer." And to another journalist's question on human rights and the treatment of Uyghur minorities in Xinjiang, he said it was open to debate, and deflected the question by referring to India's treatment of Muslims. Here's what Amnesty International say about China's approach to Ethnic Autonomous Regions: "The (Chinese) government took extreme measures to prevent free communications, independent investigations, and accurate reporting from the Xinjiang Uyghur Autonomous Region (Xinjiang) and Tibet Autonomous Region (Tibet). The government continued to implement far-reaching policies that severely restricted the freedoms of Muslims in Xinjiang. These policies violated multiple human rights, including the rights to liberty and security of person; privacy; freedom of movement, opinion, and expression, thought, conscience, religion, and belief; participation in cultural life; and to equality and non-discrimination." Keating's approach is, and always has been, to tip a bucket on anyone with the temerity to challenge his bigoted view of whatever subject he chooses to be an expert on. And there aren't many he doesn't! He obviously loves China, and equally hates America. As for the cost of the submarines under the AUKUS deal, it is budgeted at A$368 bn. in total through to the mid 2050's. China's announced defense budget this year alone is US$224.8bn. (A$321bn.) up 7.2% in 2022, although the Center for Strategic and International Sudies (CSIS) reports the actual figure maybe 1.1 to 2 times higher than the official budget. According to this search of Google, China has 79 submarines, 12 of which are nuclear powered and armed. China's defense spending in 2021 was higher than the next 13 Indo-Pacific countries combined. No doubt Keating will pooh pooh those figures as well. One can argue the cost and the strategic and military wisdom of the AUKUS deal, but while Keating's kow-towing to China might win Xi's praise, it won't win his respect. And while there's some months to go yet, it's our guess he's off Albo's Christmas card list this year! Moving right along... Good to see Ken Henry re-enter the fray, arguing for a complete re-think of Australia's over complex and outdated tax structure. However, as we argued in last week's Hedge Clippings, finding politicians of any persuasion to grapple with the issue won't be easy. But maybe if there's bi-partisan support for AUKUS submarines, there's a chance? Contagion in the banking system has been front and centre of the financial pages since SVB ran out of cash last week, thanks to rumours that spread virally via social media and Silicon Valley's IT savvy elite, with the problem spreading to First Republic Bank. At this stage, it seems that the contagion, while real, will be contained by all banks standing shoulder to shoulder, but it's a clear reminder that when faced with the potential for loss of capital, bank depositors large and small will act first, and ask questions later. And finally, Happy St Patrick's Day to the (reported) 70 million people of Irish heritage who live outside Ireland, and to the 7 million who still inhabit the Emerald Isle. Ireland plays England in the six nations rugby in Dublin tomorrow, and based on form should win hands down, as long as the Irish team didn't overdo their St Patrick's day celebrations beforehand. |
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News & Insights New Funds on FundMonitors.com Manager Insights | PURE Resources Fund The Long and The Short: Could the year ahead defy the Fed? | Kardinia Capital Stock Story: Walmart | Magellan Asset Management February 2023 Performance News Bennelong Kardinia Absolute Return Fund Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Australian Equities Fund L1 Capital Long Short Fund (Monthly Class) |
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10 Mar 2023 - Hedge Clippings | 10 March 2023
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Hedge Clippings | 10 March 2023
Let's have a real conversation about tax! Following the flurry of indignation, debate, and media comment raised by the government's changes to super balances over $3 million, everything seems to have gone quiet. Maybe this is just the temporary or short-lived nature of the news cycle, or possibly that it's hard to maintain the rage or focus on something that affects less than 1% of the population, and a seemingly privileged one at that. However, that doesn't change a couple of key issues we have with Dr. Jim's "discussion" with Australians about the purpose of their super. Firstly, the increased 30% tax rate is triggered by the value of the asset, not the amount of income earned. Secondly, if triggered, tax is payable on both realised and unrealised gains. However, those are just the details. What also seems illogical is that Treasury forecasts estimate the new tax will raise just $2 billion out of almost $250 billion a year in concessions, or less than 1% of the total. Watch out, because what the government would really like to do is to come after some of the remaining 99% if they can. Of course to do that - as Bill Shorten discovered in 2019 - they'll upset far more voters than the 0.5% impacted by their current plans, most of whom are unlikely to be Labor voters in the first place. Of course, what is needed is a total review or conversation, not only around super but the overall taxation system in Australia. We had one of those in the form of the Henry Tax Review (aka Australia's Future Tax System Review) announced by then PM "Kevin '07", in 2008. Having taken 2 years to prepare, this was handed to the hapless Rudd two days before Christmas in 2009, but not released until May the following year. For the record, Kevin Rudd was also careful to shackle Henry's review before it started. It was not allowed to consider increasing the rate of, or broadening the base of the GST, or consider imposing tax on super payments to retirees aged over 60! Henry's report made 138 recommendations grouped under 9 broad themes. Rudd implemented just 3 of the 138 changes suggested in the report, lost his job over one, the proposed resources Super Profit Tax, which became the Minerals Resource Rent Tax (MRRT), passed in 2012 under Julia Gillard, and promptly repealed by Tony Abbott in 2014. History shows it is wise to choose your targets carefully, and avoid upsetting the powerful, and in the case of the resources Super Profit Tax, well resourced (pun intended) self interested companies, 83% of which were reportedly offshore owned. History also shows the futility of trying to overhaul or change the existing system, however broken, inefficient, or inequitable it may be. Most of Henry's report and its recommendations remain in the too hard basket, gathering dust. Some, such as a reduction in company tax, have been partially implemented. This leads us to two questions: Firstly, will we ever get the reform Henry's review proposed, such as just two levels of personal income tax and a much higher tax free threshold ($25,000), across the board company tax of 25%, and a simplification of superannuation, deductions, and offsets? And secondly, will any politician ever dare to increase the GST from its current 10%, and broaden its base in return for a reduction in personal income tax? This 2020 report from PWC estimated that by increasing the GST rate to 12.5% and broadening the base to include water, childcare, health, education, and food, it would generate $40 billion a year - so a rate of 15%, (as it is in New Zealand) let alone 20% (the OECD average rate is 19.3%), it would presumably take that towards $100 billion. The answer to both questions is "unlikely" given the political pain involved. However, that's the conversation Dr. Chalmers needs to have with Australians. And then get on with it! |
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News & Insights New Funds on FundMonitors.com Market Commentary | Glenmore Asset Management Investment Perspectives: 10 charts for optimism in 2023 | Quay Global Investors Magellan Infrastructure Strategy Update | Magellan Asset Management February 2023 Performance News 4D Global Infrastructure Fund (Unhedged) Delft Partners Global High Conviction Strategy |
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3 Mar 2023 - Hedge Clippings | 03 March 2023
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Hedge Clippings | 03 March 2023 Last week's Hedge Clippings warned readers to beware of politicians with a hand in one's pocket. This week, let's double down on that, and just make it "beware politicians". Of course in this specific case, we're referring to the Treasurer, Dr. Chalmers, and PM Anthony Albanese, and their changes to the taxation of superannuation balances above $3 million, although it applies pretty universally to the lot of them (politicians that is, not super balances). However, specifically, everything Chalmers and Albo have said and done on this has either been smart, sneaky, or maybe a bit of both, depending where you're coming from. Where do we start? Let's go back a year to when both were in election (aka "don't scare the horses") mode when they were at pains to assure voters there would be no changes to superannuation. How to overcome that little obstacle? Delay the introduction of the changes until July 2025, beyond the current parliamentary term. Sneaky or smart? You be the judge. Then there's Jim Chalmers saying just a couple of weeks ago that "we need to have a conversation about super's sustainable future." Lo and behold, just a week or so later it's set in stone, and it wasn't so much a "conversation" as an edict. Much like the "conversations" yours truly was invited to have many years ago in the headmaster's study, when there was only going to be one, or normally six, painful outcomes. Either Chalmers had been doing more than writing his 6,000 word essay over his Christmas holiday, or he's suddenly had an epiphany of the taxation kind. Leaving the politics and weasel words aside, let's take a look at the policy itself: It's hard to argue that those with more income shouldn't, or are unable, to pay a greater proportion of it in tax. But Chalmers' plan doesn't hit those with high income from their super accounts, it is triggered based on the value of a member's balance, but taxed on the earnings - plus those earnings include un-realised gains. As far as the overall benefit to the budget's bottom line, Treasury's modeling indicates that there is over $250 billion a year in taxation concessions from a variety of sources, including negative gearing, franking credits, and CGT, of which super accounts for around $45 billion. Of that $45 billion, $23.3 billion is made up of concessional tax rates on contributions, and $21.5 billion from concessions on earnings. Increasing the tax on earnings from 15% to 30% on balances over $3 million will raise $2 billion a year. The government doesn't seem to have thought this through - although they've certainly thought about the politics. There's outcry and opposition enough, even though less than 1% of the population are impacted in an effort to claw back $2 billion from the overall concession pool of $250 billion. Think of the response if negative gearing ($24.4bn), CGT on a main residence ($48bn), CGT on assets held for more than 12 months ($23.7bn), or franking credits ($17.2bn) had been in their sights. Of course, Bill Shorten discovered the response to any changes to franking credits in 2019 by ignoring the fact that there are 3.1 million direct recipients from that source. It's pretty easy to sell the policy to the 99.5% of the population theoretically not impacted by it, as long as that's an accurate estimate, as clever Jim has deferred indexation of the $3 million until it is someone else's problem. (Meanwhile, the FSC has estimated that up to six times as many workers will be affected over time.) And while the critics have Chalmers and Albanese in their sights, let's not forget that successive governments have tinkered with the taxation of super ever since it was introduced by Paul Keating way back when. |
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News & Insights 10k Words | Equitable Investors The global inflation bogeyman slips away... | Insync Fund Managers Airlie Quarterly Update | Airlie Funds Management January 2023 Performance News |
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24 Feb 2023 - Hedge Clippings |24 February 2023
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Hedge Clippings | 24 February 2023 Beware of the Politician with his hand in your pocket... The government set the proverbial cat among the pigeons this week with the "floating" of ideas to change the superannuation system - with a particular emphasis on the top end of town, and it seems those fortunate - or smart enough - to have a super balance of $3 million or more. Depending on where you sit - or maybe that should be where your super balance sits - this is either irrelevant or a clear breach of then shadow treasurer Jim Chalmers' statement on the ABC in March last year that "Australians shouldn't expect major changes to superannuation if the government changes hands." Chalmers is on electorally safe ground for two reasons: Firstly, it's a fair bet that Labor will stay in office for at least one term after the present one, and secondly, he quotes the statistic that the average balance in super is about $150,000. Of course, this is misleading, presumably deliberately, so as not to alienate the "average" voter. The average balance includes those who have only recently joined the workforce - and by recently that would include those on "average" wages who've been working for the past 20 years. According to AMP, you'll need to be closer to 50 than 40 to have a super balance of $150,000 while the average super balance of a 65-70 year old male is $414,380, and $370,042 for a female. Unfortunately, AFSA calculates that a comfortable retirement lifestyle requires a balance of $640,000, so the average is not going to be enough for the average retiree. Super is great, but for the majority is not enough. Chalmers, Albanese, and Assistant Treasurer Stephen Jones have all hit the airwaves to re-iterate that any changes are fairly and squarely aimed at the top end of town, and unlikely to resonate elsewhere - although they should. For far too long superannuation has been tweaked by both sides of politics to the extent that it is incomprehensible to the average (there's that word again) worker. Successive governments have used a combination of carrot (tax incentives for voluntary contributions) and stick (legislation to compel employers to pay or deduct from wages) to reduce the reliance on welfare in retirement. Both have been successful but only up to a point. The stick has helped, but not enough to provide a comfortable retirement to the average retiree. Meanwhile, the carrot has, for those in the treasurer's sights, been overly successful, such that he wants his share of their success! You can't offer a carrot, then take a stick to those who make the most of it. You know what they say about the dangers of having a politician's hand in your pocket... While it seems the devil will be in the detail, hints are that the aim is to limit the amount one can have in super to $3 million. This seems patently unworkable to a simple mind such as ours. More logical would be to set a reasonable tax rate for income over a certain level (excluding capital withdrawal) from super in retirement. That won't be popular either, because once a tax has been introduced it will only be a matter of time before it is increased. Chalmers is trying to avoid the stuff-up Bill Shorten made suggesting changes to franking credits before his 2019 election loss. His other target might be negative gearing on property, but too many pollies have second properties (Albo included) so that's not likely as too many votes would evaporate. Taxing the super of the rich (and the not so rich) is a much safer option. |
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News & Insights Market Update January | Australian Secure Capital Fund China re-opening post COVID | 4D Infrastructure January 2023 Performance News Bennelong Long Short Equity Fund Digital Asset Fund (Digital Opportunities Class) Insync Global Quality Equity Fund Glenmore Australian Equities Fund Delft Partners Global High Conviction Strategy |
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17 Feb 2023 - Hedge Clippings |17 February 2023
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Hedge Clippings | 17 February 2023 This week Hedge Clippings thought we'd give inflation, interest rates, and RBA Governor bashing a rest. After all, it's been front page news for a couple of weeks (or should that be months) and culminated in Philip Lowe appearing before a Senate Committee grilling today for the second time this week. For the record, he's sticking to the script that inflation is the number one problem, that unemployment could reach 8.5% if it wasn't fixed, and the only way to fix it is to keep on raising rates even at the risk of recession. He acknowledged, as we suggested last week, that increased interest rates hurt the vulnerable most, and the impact "is being felt very unevenly across the community". Being in the sights of politicians asking some plainly uneducated questions (surprise, surprise), he did have a dig back, saying that he could make decisions that politicians couldn't, or wouldn't, with this comment: "It's hard for the political class to take the short-term decisions to manage the cycle." Ouch! Moving right along... If ever there was a year to reinforce the twin benefits of diversification, and taking a long-term view when investing in managed funds, 2022 would be it. Surprisingly, given the well publicised, painful, and costly examples of ignoring each, (or both) they're two of the standout lessons from an analysis of 2022 fund performances. Against a backdrop where few anticipated the sudden outbreak of inflation, or the speed and extent of central banks' reaction, overall the market had a shocker. The 12 month returns of 16 Peer Groups to December 2022 shows that only Debt (+5.11%) and Hybrid Credit (+4.20%), and to a lesser degree Infrastructure (+0.94%) provided investors any comfort. Equity funds, particularly Small/Mid Cap, both in Australia and globally, bore the brunt at -19.34% and -23.31% respectively. On a relative basis, Australian Small/Mid Cap funds underperformed their overseas peers with the average fund (-19.34%) underperforming the broader ASX200 T/R index (-1.08%) by over 18%. By comparison, while Global Small/Mid Cap funds averaged a negative return of -23.31%, this was "only" 5% below the S&P500 total return of -18.11%. While one can therefore argue that small caps weren't the place to be in 2022, taking a longer view - as recommended in every offer document for a managed fund we've ever seen - provides a more balanced view. In the three prior years, 2019-2021, Australian Small/Mid Cap funds returned 27%, 18%, and 21% p.a. respectively, and over the prior 10 years this group had only one negative year (-6.5% in 2018) and no less than six years of +20% returns. Taking it back even further to 1995, this Peer Group has returned an average of over 15% p.a. with an up capture ratio of 137% (in other words, 37% above the market's return when it is positive) and a down capture ratio of 95% (showing when the market falls, they fall almost as much). For the record, not all small/mid cap managers suffered as badly, but consistency across the cycle is difficult. Over 3 and 5 years only two - Anacacia Wattle Fund (+16.79% and 16.73%) and Glenmore Australian Equities (+16.37% and 17.42%) beat the long-term (25 year) peer group average of 15% and outperformed the ASX200 in 2022. And while some investors in Small/Mid Cap funds may be nursing losses in FY2022 (average -17.58%) that had reversed by FY January 2023 to +12.18% since July last year. There lies Lesson #1: Investing in managed funds requires a long term view. Lesson #2: Diversification, and distribution of funds' and indices' returns. Diversification is a two edged sword: Over diversification can flatten performance. Concentration - such as investing in a single fund or product - can lead to significant under-performance. While still on the small mid cap peer group - although this runs true across the board - the spread of performance is significant, particularly in market sell-offs. 2022 saw small/mid cap managers' performance range from +3.53% through to -43%. The dilemma, for investors and advisors alike, is how much to diversify, and how to avoid long-term underperformers, or worse still, the likes of Mayfair 101. |
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News & Insights 10k Words | Equitable Investors Magellan Global Strategy Update | Magellan Asset Management January 2023 Performance News Argonaut Natural Resources Fund Bennelong Concentrated Australian Equities Fund Quay Global Real Estate Fund (Unhedged) Skerryvore Global Emerging Markets All-Cap Equity Fund |
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10 Feb 2023 - Hedge Clippings |10 February 2023
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Hedge Clippings | 10 February 2023 As expected, on Tuesday the RBA did what everyone expected, and what they had to, raising rates by 0.25% in the sharpest and fastest series of increases in recent (and probably longer) memory. Even though expected by 100% of market economists, investors didn't take too kindly to it, with the ASX falling almost half a percent on the day, and after a brief rally on Wednesday, continuing to fall since. It wasn't what the RBA did that upset the market, but what RBA Governor Philip Lowe said - particularly, as we always point out - in the last paragraph (and in this case the last sentence) or so of their statement: "The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve this." That's RBA speak for "expect more rates rises to come," so unless things on the inflation front change direction quickly, 3.85% seems a forgone conclusion, possibly by May or June, and with every chance of that tripping the 4% mark in the second half of the year. Amid all the forecasts of widespread mortgage stress and damage to household budgets, the hard and nasty truth is that's what the RBA is aiming at - or at least to force consumers to rein in spending - to try to quell inflation. Unfortunately, it's not a level playing field in mortgage land, and to quote Bill Gates, "Life's not fair. Get used to it". Of course, Bill can afford to say that, but the RBA has a problem with the un-level field when using mortgage rates - as only one third of households have a mortgage - to tame inflation. The other two thirds are less, or not impacted, so they're probably still spending, even if their morning flat white is now costing them over $4 a pop. But there's more to the un-level field: Amongst the one third of households with mortgages, there are those who are more stressed than others - either by virtue of being on lower incomes, having only recently taken out a mortgage thanks to the RBA's "no rate rise until 2024" prediction, those about to come off a low fixed rate onto a higher variable one, or those with smaller savings to dip into to buffer to rise. Assuming (this is a guess) 20% of all mortgages are in the above categories, that's less than 7% of the overall population. At 50%, it rises to just over 15% of the total. This may sound as if we're being callous or uncaring. Far from it. The point is that the RBA needs to change the spending habits of the majority, not just the minority, a point they acknowledge (along with the lagging effect of higher rates) in the penultimate paragraph of their February Statement on Monetary Policy. So while they may be mindful of the uneven pain they're causing on the un-level playing field of life, "The Board's priority is to return inflation to target." And that's not going to happen at least until Santa's been around again (if we have a recession) or possibly after he's been back twice (if there's a soft landing). So, as Bill said, "get used to it". Over to markets and fund performance: As everyone knows, last year's outbreak of inflation was a shock to everyone, including the RBA, as was Ukraine, (except to Putin). The market tanked for the first nine months of the year and has since recovered strongly, such that the 12 month performance of the ASX200 Total Return to the end of January was +12.21%, significantly better than the S&P500 equivalent of -8.22% for an out-performance of over 20%. AFM's Peer Group Comparison tables show a similar, although more variable pattern, such that over both three and six months to the end of January, ALL Peer Groups, with one exception (Alternatives, which includes Crypto funds) were in positive territory. The top performing Peer Group over 12 months was the Equity Long Large Cap group, which returned just over 8% on average, with 25% of those out-performing the ASX200 TR and the top performer, the Lazard Select Australian Fund returning 32%. |
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News & Insights Market Commentary | Glenmore Asset Management Cycle is not a dirty word | Airlie Funds Management January 2023 Performance News 4D Global Infrastructure Fund (Unhedged) Bennelong Australian Equities Fund L1 Capital Long Short Fund (Monthly Class) |
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3 Feb 2023 - Hedge Clippings |03 February 2023
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Hedge Clippings | 03 February 2023 This week Treasurer Jim Chalmers penned a 6,000 word essay in The Monthly entitled "Capitalism after the crises" in which he argued for "the place of values and optimism in how we rethink capitalism," which as you can imagine drew a variety of responses. Steven Hamilton in the Sydney Morning Herald described it (among other things) as "an incoherent assortment of kumbaya capitalist thought bubbles - the kinds of ideas you might expect from a bunch of virtue-signalling CEOs attending a wellness retreat." We're not quite sure who should be more offended, the Treasurer, or the CEO's, although we're also not sure if that's Steven's real life experience, or what he imagines such a group would conjure up if they made it to a wellness retreat. Graeme Samuel however, writing in the AFR, describes the essay as "deeply insightful" and urged anyone interested "to read the essay carefully and with an open mind" and concluded his opinion piece with "Chalmers has outlined an evolution of capitalism that is both necessary and inevitable." For convenience, and if you have both the interest (and the time) here's a link to the essay so you can judge for yourself. Meanwhile, Charlotte Mortlock on SkyNews admired Chalmers' commitment but suggested the essay was far too long, proposing that a couple of hundred words would have done the trick. (Hopefully, someone gives ex H.R.H. Harry the same advice when he sits down with his therapist (sorry, ghostwriter) to pen his sequel to Spare. Come to think of it, maybe someone should have done that before he wrote Spare?) Hedge Clippings did have a crack at reading the article, but time didn't permit a full analysis, and space doesn't permit a summary of it here. We did try asking ChatGPT for a 500-1000 word summary (we thought a couple of hundred was a little ambitious) but it seems they're on Charlotte's side, as we received the following response:
That suggests to us that Chalmers, who admitted to writing the essay over his Christmas break, could have cut out some of the waffle, but old habits die hard for politicians, just like the rest of us. Our view is that while capitalism is not perfect, neither is socialism, or communism - or as Churchill once famously said, "democracy" (with which capitalism co-exists) "is the worst form of government - except for all the others that have been tried." One of the keys is that capitalism works in a democratic system, and as such, when individual values change, governments change, and so do corporate values. Each constantly evolve. The capitalism of today, much like the social and political values of today, are different than they were before each of the economic crises that Chalmers writes about. Greed, for instance (while it will always exist) is not good - or at least not exalted as such. Corporations, more than ever before, are subject to shareholder and community values, and where, when (and sometimes when not) necessary. |
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News & Insights New Funds on FundMonitors.com Equities 2023 - What's the bigger risk? | Insync Fund Managers Global Matters: 2023 outlook | 4D Infrastructure December 2022 Performance News Bennelong Emerging Companies Fund |
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27 Jan 2023 - Hedge Clippings |27 January 2023
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Hedge Clippings | Friday, 27 January 2023 In case you're still basking on the beach (or wherever) in blissful ignorance, Australia's December quarter inflation figure came in higher than expectations at 7.8%. Of course, if you ARE still away, you may also not be spending your Friday afternoon reading Hedge Clippings, but either way, it seems like RBA Governor Philip Lowe's New Year is going to start off being as difficult as his old one, although he'll no doubt be considerably more careful with his longer term forecasts than last year. The bottom line is that we suspect inflation is likely to stay stronger for longer, disappointing the optimists who were expecting it to peak early in the new year under the influence of last year's sharp rate rises. Thus, given the RBA's, and their offshore colleagues' previous perilous prognostications (try saying that quickly after a glass or three of Friday's lunchtime vino) that inflation can't and must not be allowed to become entrenched, there's going to be more pain in the form of rate rises, most likely when the RBA board gets together for the first time next Tuesday week. Early reports suggest some leading bank economists are predicting only one more rate rise, but the futures market is indicating at least two more, with no easing in sight until 2024 at least. So with the RBA's official rate currently sitting at 3.1%, and a 100% market probability of another 0.25% in February, we could see rates at 3.8% sometime in the June quarter. The consecutive rate increases totaling 3% in 2022 were the sharpest/fastest in most memories, so another 50 to 75 bps will put the icing even on that. The problem is that consumer spending hasn't changed significantly to have had an impact on inflation, and as yet, whilst there's obviously some stress in the housing market and in mortgage land, the flow-on effects that Philip Lowe is looking for haven't occurred. Of particular worry will be the fact that whilst last year's inflationary spike was primarily imported, unavoidable, or externally generated, (floods, oil, supply chain, Ukraine etc) there's the risk that home-grown inflation from wages pressure in a tight post-COVID labour market takes over. The theme of many of last year's editions of "Hedge Clippings" was interest rates and inflation, so it looks as if this year's shaping up the same way. Ditto Ukraine, which sadly doesn't look like ending quickly. Meanwhile, it does (hopefully) seem that the focus on the hard done by, but over-privileged whinger from Montecito has faded, although possibly only until his next issue - likely to be not getting a front row seat at the Coronation. Next week we'll publish the Australian Fund Monitors Review of fund and sector performances for 2022. In the meantime, we can recommend the four part documentary series on Bernie Madoff currently showing on Netflix. Or if you want something less serious, but no less enjoyable, try "Slow Horses" on Apple TV. Both are variously both more educational or entertaining than the six part Netflix saga of Harry and Meghan. That's it - the last time we mention them. (Promise). |
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News & Insights Outlook Snapshot | Cyan Investment Management 10k Words | Equitable Investors December 2022 Performance News Insync Global Capital Aware Fund Bennelong Australian Equities Fund Bennelong Concentrated Australian Equities Fund Skerryvore Global Emerging Markets All-Cap Equity Fund |
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Firstly, good riddance to 2022, which for most investors and the majority of fund managers was a year they'd happily forget.
20 Jan 2023 - Hedge Clippings |20 January 2023
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Hedge Clippings | Friday, 20 January 2023 Welcome to the first edition of Hedge Clippings for 2023. Firstly, good riddance to 2022, which for most investors and the majority of fund managers was a year they'd happily forget. The cause of most of the damage was the sharp increase in interest rates, triggered in turn by an outbreak of inflation, as noted by L1 Capital in their December performance report:
The last sentence reveals why so many funds struggled in 2022. No one expected an inflationary break out, thus market expectations - including those of central banks - for rates rises were subdued, to say the least. Throw in the unexpected invasion of Ukraine in February, plus turmoil in China, and it's easy to see why only 29% of the 700+ funds in the FundMonitors database, (including the above mentioned L1 Capital's Global Long Short Fund which returned 9.8%) provided positive returns for the year, and less than a quarter of all equity funds managed to outperform the ASX 200 Accumulation Index. Put bluntly, central banks, including our own RBA, and economists were caught looking in the wrong direction, and thus fund managers had to readjust to the new environment, which by the last quarter of the year many had managed to do. The ASX fared better than most global markets, falling 1.08% on an accumulation basis, while the S&P500 was down 18%, and the NASDAQ fell 33%. Unusually in times of equity market turmoil, bond markets didn't provide a safe haven. Looking forward, it seems inflation, while still a major issue, may have peaked in the last quarter of 2022, particularly in the US where it dropped to 6.45% in December, down from 9.06% in June. Meanwhile, in the UK the December annual inflation figure was 10.5%, down slightly from 10.7% the previous month. That may allow central banks to ease off on further rate rises, but we are unlikely to see rates fall until much later in the year, by which time the looming recession will have been confirmed. So while the path ahead is not going to be easy, and is still uncertain, hopefully, there are less unknowns: The war in Ukraine will drag on, and hopefully not escalate further. China remains a 50/50 bet, although a far cry from the economic and political juggernaut it seemed to be a couple of years ago. COVID, whilst remaining a threat thankfully seems to be receding or at least becoming more manageable. Of course, thinking that the bad news is already out there is dangerous - the unexpected is always just around the corner. But compared to this time last year, surely markets are more prepared for what might lie ahead? |
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News & Insights Market Commentary | Glenmore Asset Management Market Update | Australian Secure Capital Fund December 2022 Performance News Glenmore Australian Equities Fund Argonaut Natural Resources Fund 4D Global Infrastructure Fund (Unhedged) Insync Global Quality Equity Fund Bennelong Long Short Equity Fund Quay Global Real Estate Fund (Unhedged) |
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22 Dec 2022 - Hedge Clippings |22 December 2022
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Hedge Clippings | Friday, 22 December 2022 For our final Hedge Clippings of the year, we thought we'd look back 12 months for some inspiration, namely from the last edition of 2021, when we noted that the "certainty of uncertainty persists, along with the realisation that COVID will be with us for some time." One year on, and COVID's certainly still with us, although like many things, it seems we're learning to live with it. Elsewhere our prediction of more uncertainty proved 100% correct, with the war in Ukraine sparking inflation, and in turn unexpected rate rises, and thus the inevitable collapse of the era of easy money, and with it the tech boom. We haven't heard a report of Charlie Munger's response to the rout in Bitcoin and the crypto-sphere, but we're sure it would actually be predictable. In hindsight (easy-peasy) Scomo's demise was obvious, although the Teals' success caught most (even themselves) by surprise. We're not sure if Albo's victory caught anyone by surprise, but his smooth transition and avoidance of political potholes was welcome. Maybe the uncertainties in that regard are waiting in next May's (real) budget. Less predictable in 2022 was Elon Musk's acquisition of Twitter (surely a thought bubble?) followed by his equally unpredictable self-firing, the seeming disintegration of the government in the UK, the boredom of Netflix's $100m Ginge and Whinge show, China's COVID lockdown, and the fact that the ASX was one of the better performing (albeit negative) global markets. Looking forward to 2023: The R word is likely to dominate as recession either looms (or deepens depending on location) as inflation stays stronger for longer, and interest rates follow suit - even if the pace of rate rises eases, they're unlikely to start falling until 2024. Sadly there seems no quick end in sight to the war in Ukraine unless Russian mothers tire of seeing their sons return injured - or worse as the case may be. Penny Wong has started the reconciliation process with China, and once a suitable period has passed to allow sufficient face-saving (or should that be a sufficient period to allow suitable face-saving?) we suspect normality will resume, whatever normality means. Lachlan Murdoch is intent on continuing to rescue the reputation of his, and we presume the Murdoch family's, name from the "serious harm" inflicted by Crikey, which of course leads us to the Trump saga. Will it ever end? No doubt the lawyers hope not. More immediately, Hedge Clippings is looking forward to a short break and recharging the batteries before starting all over again next year. We'll be back in the latter half of January. Meanwhile, from all the team at FundMonitors.com we would like to take this opportunity to wish you and your loved ones a Happy Christmas, and a Healthy and Prosperous New Year! |
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News & Insights New Funds on FundMonitors.com Trip Insights: United States | 4D Infrastructure Investment Perspectives: The yield curve, recessions and soft landings | Quay Global Investors November 2022 Performance News Insync Global Capital Aware Fund Bennelong Long Short Equity Fund Glenmore Australian Equities Fund Bennelong Kardinia Absolute Return Fund Digital Asset Fund (Digital Opportunities Class) |
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