Hedge Clippings | Friday, 08 October 2021

Last week Hedge Clippings dared to feel sympathy towards our current crop of politicians - something we're not normally accustomed to doing. We deliberately avoided mentioning the demise of NSW's Premier, Gladys, even though the news was hot off the press at the time. Suffice to say, we were saddened by her news as we genuinely believe, political preferences aside, that not only did she manage a difficult job well under extremely difficult conditions, but that she was undone by a bad choice of partner. Most of us can admit to having made the same mistake over the years. Some of us more than once, present company excepted.

To be fair, thanks to the federal/state system, devised as it was over 120 years ago at a time when communications and technology were vastly different, for a population of probably well under 5 million people, we have far too many politicians.

However, if we think we have too many current politicians, that pales into insignificance when one considers how many ex Prime Ministers are still doing the rounds. To save you Googling the answer, nine of the last ten PM's are still with us, and if you include also "almost" PM's, ten out of ten, as John Hewson would have been a Pwime Minister as well had he known the difference between a cake and a cabbage!

Unfortunately, with the exception of Julia Gillard, all of the ex's seem to think they are entitled to pontificate to their less than adoring public on whatever subject matter takes their fancy. Of course the media love it, and in particular in the case of Kevin Rudd and Malcolm Turnbull the French media at the current time.

It must be something in the personality of ex Prime Ministers, particularly those that had a relatively short term and/or unspectacular success in the top job such that either the electorate or their own party dumped them (in Kevin Rudd's case both). As a result, it seems that in retirement, complete with pension, they suffer from "relevantitus" a condition we've just coined to describe those that can't handle the fact that they are no longer relevant - except of course, to themselves.

OK, enough soap box for today. Back to managed funds and their performance.

As most fund managers would know, last Tuesday saw the introduction of new legislation involving a TMD, or Target Market Determination. Essentially this requires the issuer of retail funds to be very specific about the type of investor who should be investing in their product. At face value this is a great idea, because sooner or later an investor in the wrong product is going to result in tears. Or worse.

One issue with the TMD concept is that most equity based managed funds are considered to be suitable for a long term investment. However all too frequently the reality is that for a variety of reasons the performance of individual managed funds varies over time, including as a result of manager skill, or the interaction between the underlying strategy and prevailing market conditions.

As a result although nearly every offer document, and now nearly every fund's TMD suggests investing for the long-term, namely seven or eight years, the reality is that every portfolio requires constant evaluation, and adjustment along the way.

Diversification across a number of funds is a logical and sensible solution to overcome this. However, simply selecting a portfolio of the top 10 performing funds over the previous five years is no guarantee of their future performance. If you re-run the numbers five years later (as we do at fundmonitors.com) you may, or will, come up with a significantly different list of top 10 funds.

For instance, investing in a portfolio of the top 10 funds over 5 years to August 2016 would, over the following 5 years to August 2021, have returned 10.78% per annum - just below the ASX200's return of 10.94% over the same period.

Meanwhile investing in new portfolio the top 10 funds over the five years to August 2021 would have returned 16.11% per annum, so your capital would have grown by 68% more by switching or re-weighting.

Of course investing based on past numbers and with the benefit of hindsight is simple. Ask any economist. In the real world, it is not so easy.

News & Insights

New Funds on Fundmonitors.com

Space exploration is going private | article by Magellan Asset Management

Traditional Markets Stable in August; Trouble in September | article by Laureola Advisors

Touch gives investors a slice of Afterpay talent | article by Cyan Investment Management

August 2021 Performance News

Insync Global Capital Aware Fund

September 2021 Performance News

Bennelong Concentrated Australian Equities Fund

Collins St Value Fund

AIM Global High Conviction Fund

DS Capital Growth Fund

Delft Partners Global High Conviction Strategy

Bennelong Australian Equities Fund

Hedge Clippings | Friday, 01 October 2021

Who'd be a politician in Australia?

Hedge Clippings is generally not forgiving of politicians, but we should all be thankful for them over the past 18 months or so, whatever their level, party, or persuasion. As much as we might think they should have done more, or could have done less (or in Clive Palmer's case, done nothing) they've each done what they thought was best for their respective electorate, given the information available.

Most importantly of all, we should be thankful we haven't been in their shoes. They stood as candidates, presumably with no knowledge of what Wuhan was about to unleash on the world. And the only people who should be more thankful than the public are their respective opposition parties, who're able to criticise from the sidelines without fear of having to manage the crisis themselves.

And so to markets:

Both the ASX200 and the S&P500 suffered a rare negative month in September, falling 1.85% and 4.65% respectively. As we come into October, which has historically been a troublesome month for equities, this might make some investors with long memories nervous. In Australia, you have to go back to September/October 2013 to find consecutive positive performances for these two months, and in fact, since the turn of the century that has only happened on four ('04, '06, '12, and 13) occasions.

September's fall on the ASX meant the first negative month in the past year, the first time in a long time, and certainly this century that we've had 11 straight months of gains. And apart from the 2 month COVID sell off, there hadn't been a real crisis since the GFC, which lasted from November '07 to mid-March 2009.

On the bright side, one could say the past 18 months has been a great time to be an investor in equities, as many fund managers would no doubt agree. Since April 2020, once the initial shock of COVID passed and government support kicked in, to the end of September 2021, the ASX200 Accumulation index has risen 51%. The S&P500 has fared even better, rising 71% in spite of its fall of 4.65% in September.

Inevitably, historian or otherwise, one has to question this current trend. There are those who point to the tail winds of technology, disruption, and a changing world, while the doubters point to inflation, tapering, and geo-politics, particularly in China, which is facing its own internal issues regarding credit, property and energy supplies.

Changing tack:

Tuesday next week sees the introduction of ASIC's new Target Market Determination (TMD) regime, requiring issuers and distributors of retail managed funds to specify the relative features of their products prior to the investor making a decision. Whether this will improve the investor's situation, or just create another layer of administration remains to be seen, but it is interesting to see that James Mahwhinney of Mayfair 101 fame (or infamy) still seems to believe he's done no wrong, in spite of burning his investors' millions.

At Fund Monitors we're constantly asked about the "best" fund, and we avoid the answer with good reasons. One, diversification across multiple funds, asset classes or strategies is the best way to reduce risk, and two, the best fund for one investor might not suit another.

So look before you leap - in other words, compare, and do your research, before you invest.

News & Insights

What is a Life Settlements investment? | article by Laureola Advisors

Reduce your risk and pick outstanding companies | article by Airlie Funds Management

Global small caps: From unrecognised growth to future global titans  | article by Ausbil Investment Management

Crackdowns in China: Part 1 | article by Arminius Capital 

Banning unvaccinated workers could impact our economy | article by Pendal

August 2021 Performance News

Insync Global Capital Aware Fund

Hedge Clippings | Friday, 24 September 2021

Last week in Hedge Clippings we quoted John Lydgate's "You can please some of the people all of the time, you can please all of the people some of the time, but you can't please all of the people all of the time". Observing the TV news from Melbourne this week, it seems the 14th century monk left out another (luckily small) group: Those that you can't please ANY of the time. Had they been around in Lydgate's day they may not have faced paint balls and rubber bullets, but it is also unlikely they would have been able to back up again the next day. Meanwhile moving to markets - particularly equity and property - both of which have had an extraordinary run for all sorts of reasons, partly in spite of, and partly because of COVID. This may well continue for some time to come. The US Fed, and other central banks obviously want to keep things on an even keel, particularly knowing the level of leverage in the system, and the havoc that inflation and/or any material rise in interest rates will wreak. COVID will eventually pass (to a greater or lesser degree, depending on some known and unknown knowns) and this will create a surge of consumer and business activity, although there are going to be permanent changes to some sectors. Most of those changes or adjustments have already been factored into equity models and valuations. There are still the tailwinds of global growth due to demographics as emerging countries continue to develop - if not a middle class, a great mass of people who are rising above subsistence or a hand-to-mouth existence, and the infrastructure pipeline, both in developing, and developed countries. So where's the problem, or the hesitation? Valuations are, if not stretched, certainly high by historical standards. There are two views on this - they will either revert to the mean, or remain high to become the new normal. Either way, it is unlikely they will get stretched further, except in specific sectors. In the US retail sentiment has turned decidedly bearish whilst the S&P500 continues its upward trend, as shown by the chart below courtesy of Longview Economics. It is also worth keeping in mind that the S&P500 has doubled (admittedly from an oversold position) in the past 18 months, but even ignoring the initial COVID slump has risen approximately one third in less than 2 years in spite of COVID.

China is a problem, and whether Paul Keating thinks we should kow-tow to them or not, we'd assume he's a pretty lone voice, not only in Australia, but globally (excluding in China itself of course). Australians, or our media, may be somewhat xenophobic, but we're not alone in being subjected to their wolf warrior style of diplomacy.   Taiwan, the South China Sea, and the associated military build up is going to remain a (possibly the) major theme for decades or more. If less, then watch out and head for the hills, or the bunker if you have one.   But China is also facing significant internal economic issues, including the Evergrande property/debt/credit issue that has the potential to cause significant social ripples as well as economic ones. Evergrande it may once have been, but no longer, and the sheer scale and extent of their property empire, and the number of Chinese investors impacted will have many, both within and outside the ruling elite, concerned.   President Xi has ultimate control, but to what extent he can control the Evergrande crisis is uncertain. Headlines such as "Pop goes the Chinese Property Bubble" in the Wall Street Journal, or "Has China's Housing Crisis Finally Arrived?" from Foreign Policy may be slanted by an outsider's view, but the size and extent of Evergrande's risk to the Chinese economy are significant, and yet to play out. Finally, it wouldn't be Hedge Clippings without the opportunity to take a swipe at ex PM Kevin Rudd, who, always the opportunist himself, this week wrote a piece for the French newspaper Le Monde criticising the decision to cancel the French submarine deal in favour of a joint US, UK version. Given France's success (or lack of) on the battlefield or at sea over the past few centuries, including more recently in WWI and WWII, we're probably better off without the French - or their submarine

News & Insights

Is Evergrande Contagious? | article by Premium China Funds Management

What are the Benefits of Life Settlements for Society? | article by Laureola Advisors

Investment Perspectives: Thinking about office  | article by Quay Global Investors

August 2021 Performance News

Laureola Australia Feeder Fund

Bennelong Twenty20 Australian Equities Fund

Delft Partners Global High Conviction Strategy

Glenmore Australian Equities Fund

Frazis Fund

NWQ Fiduciary Fund

Hedge Clippings | Friday, 17 September 2021

"You can please some of the people all of the time, you can please all of the people some of the time, but you can't please all of the people all of the time."

In the past we have, (along with none other than Bob Dylan) incorrectly attributed the above quote to Abraham Lincoln. Maybe we should leave Bob to his music and poetry. After all,  his 1965 classic "Like a Rolling Stone" is still ranked in the all time top 10 hit songs, in spite of him being booed for playing it on stage at the time.  

The quote actually precedes Lincoln by some 400 years, as it should be correctly sourced to John Lydgate, an English monk and poet who lived from 1370 to 1450 and was a follower of Chaucer. Probably enough information for a Friday, but you may need it next time you play trivia.

But, yet again, we digress. The point is, it seems - possibly thanks to or because of Covid - everyone's either pleased or displeased, and not only about Covid either. (By the way, who would have thought that being an epidemiologist would put you on the nightly news?)

We're either whingeing because we're locked down and there's not many cases, or because they're lifting restrictions too early in the places where there are too many. That probably depends on which LGA you live in. Or you're pleased because you want everyone in the restaurant to be double jabbed, or unhappy because you can't go there if you're not.

Then there are those complaining about "personal freedom" about having to have a jab (which as far as we know is not the case) and ignoring the personal freedom of those around us wanting to get out and about without getting sick. While not dismissing the seriousness and effect of COVID in Australia let's look at some cold hard facts:

We have now had 3,158 cases and 44 deaths from Covid per million of the population. The USA has had 129,492 cases and 2,088 deaths per million, while the UK has had 111.601 cases and 2,050 deaths per million. In other words, on a per capita basis, you're close to 50 times more likely to have died of Covid in the US or UK than in Australia.

BTW, and still on Covid and trivia, but serious trivia, Covid ranks as the 26th most common cause of death since January 2020 in Australia, whilst in the US it ranks 1st, with 685,295, and the UK the second, with 134,805 (behind dementia and alzheimers). For more details see worldlifeexpectancy.com.

And in spite of this, Matt Canavan, a federal government senator, claimed this week that vaccinations aren't effective or should be optional, and "we should take a leaf out of the UK's book"!  We're assuming his only excuse is that he's from FNQ, and perhaps the news hasn't reached him yet: Covid kills lots of people, but particularly the unprotected.

So back to John Lydgate's quote. It seems nothing has changed over the ensuing 600 odd years. Or 700 if it comes to that, when the plague known as the Black Death wrought havoc across the world, (which according to the website History was also possibly passed to humans by a tarabagan, a type of marmot in Mongolia) and which eventually petered out, possibly due to the then quarantine efforts.

What's all this got to do with managed funds you might ask?  Precious little, except that there's a perpetual debate around active vs passive funds, returns vs. risk, and any number of other aspects that you agree or disagree on.

You can please some of the people.......

News & Insights

Vantage Private Equity Growth 4 Close Date: 30 September 2021 | Vantage Asset Management

10k Words - September 2021 | article by Equitable Investors

The Rise of the Contactless Economy - A Global Megatrend | video by Insync Fund Monitors

The Long and The Short: What reporting season can tell us about life in Australia  | article by Kardinia Capital

August 2021 Performance News

Premium Asia Fund

Equitable Investors Dragonfly Fund

Collins St Value Fund

Longlead Pan-Asian Absolute Return Fund

Airlie Australian Share Fund

4D Global Infrastructure Fund

Prime Value Emerging Opportunities Fund

Hedge Clippings | Friday, 10 September 2021

China - Risk vs Opportunity

This week we had the opportunity to catch up with three fund managers in the now normal 'Zoom Room' to explore the current investment risks - or opportunities, depending on one's point of view - of investing in China.

Quite deliberately we chose individual managers who hold opposing views as we've always been advised that it takes two to create an argument. Of course, we chose carefully there, so while everything was conducted with absolute civility, we did want to explore both sides of the debate.  

We were joined by Robert Swift of Delft Partners, a global asset manager with significant experience across the Asia-Pacific markets. His view can be summarised in his opening statements - opportunities in China may not be what they were, but it certainly remains an investable market.

Jack Dwyer, from Conduit Capital is a global manager, investing with an eye on the future, noting that 70% of the world's population will be millennials or Gen Z by 2030. Hedge Clippings is just getting used to being termed a Baby Boomer, so always has to calculate what these generations represent, other than billions of people with a different taste in music, and who have probably never heard of Dylan, Dire Straits, or Van 'The Man' Morrison.

But we digress - Jack is equally firmly on the opportunity side when it comes to investing in China, notwithstanding, or possibly in part as a result of recent concerns and weaknesses in Chinese-related markets. Jack believes the current situation is part of a strategic plan by Beijing that many in the West may be misunderstanding.

Alex Pollak from Loftus Peak Global Disruption Fund has a different opinion, having invested successfully across the Chinese 'theme' in the past, and while accepting that Chinese valuations might look attractive, believes that the shift away from shareholder benefits back to those of the Communist Party or State makes the risk unattractive for the time being.

As much as we tried to keep personal views and opinions out of the discussion, and accepting that our three guests are professional investors in their fields, with many decades of experience between them, compared with Hedge Clippings' mere position as a spectator on the sidelines, such was not to be the case. In any event, our bias evened up the argument, even if it didn't strengthen the 'risk' case.

You can watch the full interview here, and make your own mind up - assuming of course, you're not already on one side or the other.

Meanwhile, this week AFM's COO, Damen Purcell, also spoke with Jonathan Wu from Premium China Funds Management specifically regarding Asian Fixed Income, and some of the opportunities and challenges within the sector. You can watch the full interview here.

Staying on the China theme, at least locally, and maintaining the cynical view for which we may have been noted for previously, comes a report from Bloomberg earlier today that China is lobbying the Australian government to support its membership of a group called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, saying "China is committed to building a community with a shared future for mankind, and stands ready to work together with all the other parties to promote globalisation and regional economic integration."

Given China's attitude towards Australia over the past 18 months, this seems bizarre.

Did we mention we're a cynic?

And on that note, have a safe and happy weekend!

News & Insights

New Funds on Fundmonitors.com

The Outlook for China | Roundtable Interview with Delft Partners, Loftus Peak and Conduit Capital

Manager Insights Interview | video by Premium China Funds Management

A very good business | article by AIM

To invest or not to invest in China? | article by Delft Partners

Higher inflation can be a friend to real estate investors | article by Quay Global Investors

August 2021 Performance News

Paragon Australian Long Short Fund

Bennelong Australian Equities Fund

DS Capital Growth Fund

Bennelong Kardinia Absolute Return Fund

Cyan C3G Fund

AIM Global High Conviction Fund

Bennelong Long Short Equity Fund

Hedge Clippings | Friday, 03 September 2021

Last week we flagged the record second quarter earnings season in the US. By any measure the Australian reporting season just ended will also go down as one of the strongest on record, no doubt justifying market valuations which are also being supported by record low interest rates and government and RBA stimulus.

Along with the records goes a massive payout by listed companies of dividends or buybacks to the tune of over $6bn, which will hit shareholders' bank accounts in the December quarter, and/or be reinvested - either way further bolstering prices and valuations.

This week we spoke with two local fund managers, Rodney Brott from DS Capital and Graeme Carson from Cyan Investment Management, to get their take on reporting season. You can see each interview below.

Unsurprisingly, given the generally positive reports from the market as a whole and the companies each fund invests in, both Rodney and Graeme were cautiously optimistic about the market's overall direction. Both indicated that whilst face to face visits with company management have been hard to achieve over recent months, the level of guidance and communication from them has, if anything, improved - possibly as a result of lockdowns.

Reporting season is always an interesting time. It allows shareholders and the market to take stock and review past performance, as well as looking forward to gauge the company's future prospects, understanding that, all too often, today's fair value is based on future earnings 12 or 24 months ahead.

Unlike individual equities - which can suffer significant price swings and fluctuations on even a daily basis (but provide daily liquidity in return) - investing via managed funds, as both Rodney and Graeme emphasised, requires a longer term approach and, as good as things have been in the past 12 months, there's no guarantee that 2022 will produce another market performance of 25%.

Reporting season also gives investors the opportunity to measure the fund managers, and their ability to have made good investment decisions over the prior year, or years. As a result we'll watch with interest to see how the funds on www.fundmonitors.com have performed once their August results have been reported.

Meanwhile, we turn away from the local market to Asia, or more particularly, China - albeit whatever happens to China's economy affects Australia to some degree. The more many investors see of President (more correctly, Dictator) Xi's control over both the economy and everyday life, the more many of them seem to grow concerned.

According to Jack Dwyer from Conduit Capital, in recent months over $1 trillion has been wiped off the value of US listed Chinese technology firms in response to regulatory developments. Many western commentators have called China 'un-investable' and as a result many fund managers' exposure over the past decade has never been lower than it is now.

Dywer's Conduit Capital has taken the opposite view and sees China as an opportunity, increasing exposure to selective Chinese assets and proxies in recent weeks. Hedge Clippings is not an expert, or close enough to either the opportunity or the risk to say which view will prevail. However, it is fair to say our opinion of China's Dictator and his authoritarian regime is not high, even though we are an admirer of many of China's achievements in the past, and Chinese culture as a whole.

To try to throw more light and knowledge on the subject, next week we will reach out to a number of fund managers to discuss China's current position and future outlook. Watch this space.

For the first time in many weeks we've thankfully managed to get to the end of Hedge Clippings without mentioning the 'C(ovid)' word.

Until the next time, stay safe and have a good weekend.

News & Insights

New Funds on Fundmonitors.com

Reporting Season Insights | Interview with DS Capital

Reporting Season Insights | Interview with Cyan Investment Management

Best and Less Group Case Study | article by Vantage Asset Management

Fund Review for FY21 | video by Frazis Capital Partners

Cutting Through the Noise | video by AIM

2021 Mid-Year Pan-Asian Equity Market Review | article by Longlead Capital Partners

Domino's set to fatten wallets too | article by Insync Fund Managers

Big Tech's success incites a backlash | article by Magellan Asset Management

Hedge Clippings | Friday, 27 August 2021

Driven by low/zero/negative interest rates, low inflation, Central Bank intervention, massive infrastructure spending and advances in technology, equity markets have been almost unstoppable since the GFC ended back in 2009/10.

Even the Covid correction in early 2020 only caused a temporary blip on the equity charts, before further government stimulation kicked things off again.

Hence the question is often asked about when and why we'll come to the end of one of the more significant bull runs in the history of equity markets. Short of some kind of left-field geopolitical event (Taiwan perhaps?) the 'why' is probably pretty clear: When governments and central banks take action, either on tapering their bond buying, or when interest rates rise as a result of inflation.

As for the 'when', well that might not be too far away, with all eyes on Fed Chair Jerome Powell at the current Jackson Hole virtual symposium, followed by three equally closely watched Federal Reserve meetings due before the end of the year.

The Fed's Powell has been at pains to keep the markets and economy as steady as possible for the past year or more, waiting until "substantial further progress has been made toward our maximum-employment and price-stability goals."

We'll have to wait until after the weekend to hear whether he thinks sufficient progress has yet been made, but in the meantime equity market second quarter reporting season in the US has probably been a case of as good as it gets, certainly according to data courtesy of Dr. Ed Yardeni's excellent research analysing y/y growth in S&P500 revenues and earnings per share in Q2.

Growth in revenue per share increased by 18.5% in Q2, while earnings per share rose 87.7% and both revenue and earnings grew to record levels, as did the S&P500's profit margin, at 14%.

Yardeni also reports a record number of positive and negative earnings surprises in Q2 - 87% beating expectations while only 9.8% were below expectations - the most and least since the data series started in 1987. For those old enough to remember, '87 was a memorable year on the market as well, but for all the wrong reasons.

Back to the present, 5 out of 11 of the S&P's sectors' profit margins were at record highs, and as for the future, Yardeni's expectations for forward revenues, earnings and profit margins all rose to new heights in August, suggesting Q3 will be another record quarter, and we're sure Jerome won't want to spoil the party.

Meanwhile, next Tuesday Australia is reaching the end of its own full year reporting season, and to get an up close and personal account of how our listed corporate sector has exceeded, met, or fallen short of expectations we'll be speaking to Rodney Brott from DS Capital, whose Growth Fund has an 8 year track record and has consistently outperformed the ASX200 each year, with lower volatility, and as a result, has a Sharpe Ratio of 1.31 since inception.

A recording of the interview will be available in next week's Hedge Clippings.

Last week's edition of Hedge Clippings briefly compared the tribulations of Australia's Covid restrictions with the life-threatening difficulties of people wanting to leave a locked down Afghanistan. Those difficulties tragically became more real overnight, with the added realisation that thanks to ISIS while the Taliban may now be in power, the country will remain as dangerous as it has been for the past 20 - and some will say 200 - years.

In 1946 Winston Churchill spoke of the Communist Iron Curtain coming down across Europe. Sadly, a different Iron Curtain is coming down for the people - and particularly the women - of Afghanistan.

And on that note, have a safe and happy weekend.

News & Insights

Video Interview with Vantage Asset Management

A (mostly) good news story article by Airlie Funds Management

Which payment provider? PayPal or Afterpay article by Insync Fund Managers

10k Words - August 2021 article by Equitable Investors

Hedge Clippings | Friday, 20 August 2021

'All the world's a stage, and all the men and women merely players...'

Hedge Clippings is not quite sure what made the above quote from Shakespeare's 'As You Like It' spring to mind, except perhaps the concept that life moves on, as in 'the acts being seven ages'.
  
Right now, in the middle of COVID and the seemingly never ending lockdown (maybe, but who knows, we might be progressing, albeit slowly), it seems the days and weeks are becoming very similar, and not moving on at all. The daily update from various premiers seems much like the days before, except for the actual numbers which seem to increase, including - encouragingly or in spite of - the number or percentage of vaccinations administered.

Fund managers meanwhile are continuing to make excellent returns on behalf of their investors, supported of course by equity markets both here and overseas.

To the end of July the ASX200 total return index gained over 28%, and the S&P500 over 36%, with the small and mid-cap sector equity based funds significantly outperforming both the market and their large-cap peers:

ASX200 Total Return      Large Cap Funds       Small/Mid Cap Funds
          +28%                              +29%                            +41%

S&P500 Total Return      Large Cap Funds       Small/Mid Cap Funds
          +36%                              +32%                            +40%

This may seem a little glib and trite coming from a corner of the financial services sector which has to date been inconvenienced, but remains largely financially unaffected by COVID. Life may be tedious, but thanks to technology, Zoom, government support, deal flow and low interest rates, tedium and lockdowns are merely a personal inconvenience.

Not so elsewhere, or in other sectors, be they geographic or industry. Discretionary retail, food and beverage (although we're doing our best to support the local bottle shop), entertainment and travel will, assuming they survive until vaccinations take over, simply struggle, as will their employees and suppliers. At what stage that economic activity (or lack of it) flows through to the broader economy remains to be seen.

In the meantime as life meanders on, our thoughts go out to those in Afghanistan for whom 'lock-down' takes on a whole different meaning. We'd all do well to consider that, before complaining of masks, lock-downs, or the removal of so called civil liberties.

The Bard would have put it better, but that's the best we can do.

And on that note have a safe, and happy weekend.

News & Insights

New Funds on Fundmonitors.com

Video Interview with Premium China Funds Management

An Deeply Unloved Sector and Deep Value Investing article by Collins St Asset Management

It's a Topsy Turvey World article by Delft Partners

Electric vehicles are the next revolution in automobiles article by Magellan Asset Management

Hedge Clippings | Friday, 13 August 2021

As we collectively grind deeper and deeper into lockdown or the threat of it (depending on your location), there's now no doubt that the only way forward is ensuring vaccinations reach a level where the majority of the population have immunity. The experts can throw out all the numbers they like, but if one thing's been proven over the past 18 months, it's that even with the best will in the world we can only be certain of being safe with the benefit of hindsight.

And of course hindsight by definition is something we never get in time - until the next time! So in the meantime there's only one thing to do: Play it safe, play by the rules, and get vaccinated as soon as you can.

Meanwhile equity markets keep on keeping on, even if only edging higher. So how do fund managers differentiate themselves when investing in what can only be described as a crowded market, or one dominated by the weight of passive investments which keep driving up markets and valuations? It's worth remembering the old saying that "a rising tide lifts all boats" but also don't forget the ebb tide which can leave the unprepared high and dry.

This week we reached out to two fund managers each taking a very different approach - from each other, and from the market in general - when looking for opportunities 'outside the square' in their investment strategy. Both have returned over 60% in the past 12 months, so they have shown an ability to provide their investors double the return of the ASX200 over the same time frame.

Vas Piperoglou and Michael Goldberg manage the Collins St. Value Fund, and it's fair to say they're not scared to back themselves in more ways than one. Not only do they invest alongside their investors, they don't charge a management fee, relying only on performance fees for their reward. In addition, they're prepared to invest in unloved assets or market sectors where their research indicates outstanding, and often hidden value.

The Collins St. Value Fund invested in Uranium as a theme some years ago - an unloved or unpopular sector if ever there was one - which helped them to a return of 60% over the past 12 months, without one negative month. Far from resting on their laurels, they're going outside the square again with a special purpose fund solely investing in the Offshore Oil Servicing Sector.

Most investors and analysts, including Hedge Clippings, might question this approach - oil not being the darling of the ESG set. But as Vas points out in this interview when we spoke with him, they've done the numbers, and they're more than happy with what they show.  

Our second manager interview for the week was with Martin Pretty who manages Equitable Investors' Dragonfly Fund. Martin previously worked at well known Family Office, Thorney Investments, where he no doubt honed the art of investing in early stage, pre-IPO and small cap listed companies.

Like Vas at Collins St., Martin's Dragonfly Fund has returned over 60% in the past 12 months, where his approach is not only to invest alongside his investors in the fund, but Equitable also actively engages with the companies that the fund invests in. This can extend to taking positions on the board to assist in capital raising and capital market issues where the management and owners might not have experience or expertise.

Martin also 'takes his own medicine' or advice, by having on his own board well-known Melbourne stockbroker Hugh Roberston, and more recently by adding Paul Dwyer, founder of PSC Insurance (ASX:PSI) as both a shareholder and director.

You can watch our interview with Martin here.

Both interviews are longer than normal at over 10 minutes each, but hopefully worth listening to for different takes on how innovation in their respective investment approaches can provide an attractive return.

News & Insights

Video Interview with Collins St Asset Management

Video Interview with Equitable Investors

Silk Laser Clinics Case Study: How do Private Equity Managers Make Money? article by Vantage Asset Management

History, a Useful Tool - Not a Looking Glass article by Insync Fund Managers

Hedge Clippings | Friday, 06 August 2021

Over the past few weeks Hedge Clippings has been trying to avoid COVID-19, both literally and as a subject matter. There's not much more that can be said, other than 'everyone is over it', but we're still all up to our armpits in it. And for those in or around lockdown there's not much that can be suggested other than to keep safe, get tested, and above all get the jab.

We're thankful we never considered a career in politics.

And if we think we're in trouble, take a look elsewhere: 210.7 million cases worldwide and 4.28 million deaths. And before we start complaining about how badly we're handling the current outbreak and lockdown, consider this: In the UK there has been 1 case of Covid for every 11 people, and one death for every 525. Out of 220 countries, that puts them in equal 28th and 33rd place respectively.

In the USA the numbers are similar - 1 case for every 9 people, 1 death for every 527. Equal 11th and 36th.

Australia, even with the current crisis, is way down the list. Even with 308 new cases, we have 1 case for every 723 people and 1 death for every 27,677. That puts us at position 180 and 190 respectively.

If it doesn't sound too glib, we're also doing well in the Olympics, at the other end of the rankings. At present we're a credible 4th overall, but on a per capita basis we're right up there. We don't usually crow about our sporting prowess, we'd rather just sit back,enjoy it, and congratulate the achievements (and behaviour) of every athlete who even made it to Tokyo.

Normally, of course, we're looking at fund performances, not medical or sporting statistics. So this week we took a deep dive into the average performance of a peer group of Australian and Global "Long Only" funds over the last 3 years to 30 June 2021. Instead of pulling out the top performers individually, we reviewed the performance based on the length of their track record.

We've done this before but once again it reinforces the point: The best performance comes from  managers with a track record of less than 5 years, who returned on average 14.9% per annum over the past 3 years, followed by 13.58% for those with a 6-8 years track record, after which it flattens out to around 11%, and then dropped to 10% for managers with a track record of more than 20 years.

However, given the bias in some investment committees towards managers with a longer track record (and sometimes with good reason) early stage managers are worth including in many portfolios.

News & Insights

Have Emerging Market Funds Passed Their Used-By Date?: Part II by Premium China Funds Management

The Long and The Short: The running of the bull by Kardinia Capital, a Bennelong boutique

How REA Group became the great Aussie multi-decade compounder by Chris Demasi, Montaka Global Investments