Hedge Clippings | Friday, 21 May 2021

Crypto currencies crashed, but not crushed.
 
As we start this edition of Hedge Clippings, Bitcoin is trading at US$40,737, up 6.72% in the last 24 hours, but down 17% over the past week. Ethereum, at US$2,776, the second largest coin by market value, is up 12.36% over 24 hours, but down 25% over the week. At their lowest point both were close to 50% off their previous all time highs, with Bitcoin trading close to US$30,000, down from a mid April high of US$63,000.

This is what many crypto disbelievers were either expecting, waiting - or possibly hoping - to happen.  Warren Buffett, Chairman and CEO of Berkshire Hathaway, and his vice-chairman, Charlie Munger have both been outspoken critics of the crypto sector, and Bitcoin in particular. Buffet called it "rat poison squared" while Munger said digital currencies are "disgusting and contrary to the interests of civilisation".

They may well be right, and time will tell, although at 91 and 97 years old respectively, that time may not come soon enough to prove either right or wrong.

Hedge Clippings has to admit to not having all the facts at our disposal: The world of crypto currencies is complex, complete with market terminology which sounds familiar (exchanges, futures, derivatives and the like), and jargon which would not seem out of place in a cross between a sci-fi TV show and a group of millennials on whoopee weed (if they still use that stuff).
 
It's not only a whole new world, one has to learn a whole new language to understand it. What we do understand however is that so far, in spite of the volatility of the past week, and the volume and value of trades involved, the core infrastructure supporting the over 9,800 different coins or currencies, and across hundreds of exchanges operating across the globe, 24 hours a day, 7 days a week, the trading infrastructure has remained operating and intact.
 
Compare that with traditional equity exchanges, subject to failures and flash crashes, or suspending trading when volumes or volatility exceeds comfort levels. Crypto we believe is here to stay, albeit that governments around the globe are wanting to curtail, control or ban it - in fact action from China this week started the roller coaster described above.
 
Is crypto speculative? No question! Is it, to traditional "investors" such as Warren Buffet, who starting in 1951 has built his working life over the past 70 years creating "value" out of real businesses and assets, "disgusting"? Undoubtedly!
 
But it is - or at least trading in it - real, and the opportunities are likely to remain, although picking the next Bitcoin - which sold for 5 cents in 2010 and reached $65,500 in April and is still worth $39,903 as we reach the 8th paragraph of this newsletter - might not be as easy.
 
Interest in Bitcoin and other crypto currencies has accelerated recently in large part due to media coverage, and human nature which dictates that a relatively small outlay which leads to a massive payoff is seen as a reasonable "bet" - somewhat like buying a lottery ticket, but probably with better odds. That doesn't help the majority of people who're attracted by the risk/reward payoff, but either don't know where to start, or even if they did, don't believe they have the skills, expertise or time to enter the market.
 
Until recently, at www.fundmonitors.com we've steered clear of the crypto world, either through our own lack of knowledge (ongoing, but getting there) or useful and reliable sources of information. However, with over 800 managed crypto funds reportedly available around the globe, that's changing, so unless they (and we) are all dreaming, we need to be in the know.
 
Are they a store of value as some supporters believe; an asset which lies outside the normal government and exchange rules; or are they just too risky to contemplate?
 
Or are they simply a trading opportunity that's both intriguing and too good to miss - even though you might have already missed the upside, and if it comes to that, the downside over the past week.
 
As a result we have organised a webinar to be held on Thursday June 3rd at 4:30 to try to clarify what to many is the unknown world of crypto currencies and for those - believers and disbelievers alike - who'd like to know more but perhaps don't know where to start, or want to understand how to avoid the risks.

We have been fortunate to secure as our guest Clint Maddock, Founder of Sydney based Digital Asset Funds Management (DAFM), and CIO of their newly launched Digital Asset Fund. Clint heads DAFM's team of over 20 financial markets and software professionals and has over 17 years experience trading complex derivative products with an impressive CV that includes studying Aerospace Engineering before co-founding Tibra, a high frequency trading operation, in 2006.
 
If you would like to join us while we ask Clint to explain, educate and answers your crypto questions, please register your interest here.

News & Insights

The Capital Cycle: Chasing Narratives vs Owning Cash Flows by Aitken Investment Management

Prime Value Emerging Opportunities Fund shows the benefits of staying invested by Prime Value Asset Management

Hedge Clippings | Friday, 14 May 2021

This week's federal budget contained the usual bag of surprises - namely very few. As has become the norm on both sides of politics, most of the announcements due on the night were pre-released in a series of carefully planned "leaks" which seems to make the concept of a "lock up" for journalists somewhat of a waste of time.

Hedge Clippings has to admit to some degree of bias when it comes to politics and therefore this week's federal budget. The reality is that everyone has an opinion and depending on perspective, point of view, and/or personal situation you are either going to think it was good, bad, or be indifferent.

As an employed WASP, not dependant on a government handout, not in aged care (yet, but moving towards the front of the queue) or having any children in care, meant there was no excuse to break out the Bollinger. I suppose that makes us indifferent, but who needs an excuse?

On the other hand, as the Treasurer noted, the economy is going gangbusters in spite of COVID-19. In fact, one could argue that the reason it is doing so well is thanks to COVID - or at least the government's response to the global pandemic. Hence our degree of bias, as mentioned above. If the economy's going gangbusters the majority, but admittedly not all, of the people will benefit.

Pity poor Anthony Albanese - he didn't have much to hang his hat on in his budget reply. But, as this clip of the Opposition's reaction to the Federal budget shows, opposition leaders not only love to whinge, it's expected of them. And you only need to listen to the first couple of minutes (not the full, boring 1 hour and 7 minutes version) to understand why we think, irrespective of no international travel for another 12 months or more, that most Australians are better off here, than elsewhere.

Rightly or wrongly Hedge Clippings is of the opinion that - give or take a few mis-steps - Australians have on the whole been well served by governments both state and federal since COVID emerged from Wuhan in late 2019 - although we sometimes wish they'd stop the political point scoring, but we do admit they are, after all, politicians.

Closing the border with China early in 2020, and then the rest of the world, was a smart move that's kept the majority of Australians safe and healthy. As was the heavily criticised ban on Australians returning from India, based on the latest report that the first repatriation flight took off half empty after 40 passengers tested positive.

Throwing a few $tn's in every direction initially kept the majority of individuals who needed support, supported, and businesses open. Not perfect, as some didn't need the support, but better to be generous than otherwise, even if future generations may not agree.

In spite of all this, it seems there's a wall of discontented whingers - or maybe just some very vocal ones, making the most of their opportunity to stand up and have a go when most of the news - bad Covid numbers overseas or inability to travel - is just a repetition of yesterday's or last week's feed.

OK, off the soapbox - back to funds and performances.

Equity based funds continue to benefit from equity markets with the ASX200 total return up 31% over 12 months to the end of April, and the S&P500 up 46% over the same period. 65% of equity based funds have outperformed the ASX200, with 94% of all funds providing a positive return over 12 months.

In April, equity funds provided the usual mix of performances - with the best - Paragon's Australian Long/Short Fund returning 23.6% for the month to take their one year performance just shy of 100%. Full details of all fund returns are available here, and there's the usual roundup below.

News & Insights

New Funds on Fundmonitors.com

The market is overreacting by Montaka Global Investments

Warnings from the most successful bank CEO by Arminius Capital

Hedge Clippings | Friday, 07 May 2021

Drums of War?

China's extraordinary rise and growth over the past 16 years (and more) has dominated Australia's prosperity across many sectors - resources, agriculture, education, property, investment and trade generally. Both sides seemed happy with the benefits, even if certain cultural and political issues were conveniently overlooked by both along the way.

It would also not be incorrect to say that over the past sixteen months both Australia's and the world's attention has been dominated by China - and given the source of COVID, not only economically. In simple terms a few home truths have resulted in what many would call an overreaction by China - either in the form of rhetoric and name calling, or in Australia's case in the form of punitive trade sanctions carefully selected to do maximum harm on one side, and minimum damage on the other.

And as the rhetoric and name calling has increased, so the West has focussed on security and the long held Chinese claims - particularly under President Xi over Taiwan - and the potential for a real military confrontation, rather than the escalating sabre rattling.

A recently published book in the US predicted that China would invade Taiwan by 2034. Chris Joye writing in the AFR this week raised the stakes, estimating the chance of war at 50%. Kevin Rudd, who if nothing else knows China well, estimates China will invade Taiwan, but not for a decade.

So the question - both IF and WHEN - is certainly front of mind in Australia, and it seems is rapidly gaining global attention.

This week Hedge Clippings asked Delft Partners' CIO Rob Swift his opinion. Rob has many years' experience both globally and in Asia, and his view was quite different. He argued that while tensions, particularly over Taiwan, are high, much of the rhetoric (and not only on the Chinese side) is political and populist, and aimed at the domestic population.

Rob's logic, and it does seem logical, is that China cannot afford a military confrontation due to the economic and trade damage that would result. In the short interview (which you can see here) he says "follow the money" and "follow the trade flows" which China has benefitted from to such a massive extent over the past 20+ years.

The risk to this of course is, what if Xi thought he could invade Taiwan and get away with it without provoking a military confrontation with the USA? However, one would assume that this would result in such a massive global political and trade backlash that invading a small island with a population of less than 25 million, however politically or strategically important, would be the equivalent of kicking an economic "own goal".

As such, Rob certainly agrees we're at war, but that it is a trade war, and likely to remain so.

So the question remains both If, and if so, When. Time will tell.

And on that sobering note, enjoy the weekend.

News & Insights

Video interview with Robert Swift from Delft Partners

Beware the beauty contest by Aitken Investment Management

Taiwan: Not the Most Dangerous Place on Earth by Delft Partners

Hedge Clippings | Friday, 30 April 2021

All the world's a stage,
And all the men and women merely players;
They have their exits and their entrances;"

As You Like It, William Shakespeare.

It's been a month (and a week) when a few high profile members of the financial sector made their exits, while others seem to be perilously close to the door.

Joe Longo entered, taking over from ASIC's trouble prone Chairman James Shipton. Treasurer Josh Frydenberg looked as pleased as punch in the photo shoot, as Shipton had become somewhat of an embarrassment, particularly as Clive Palmer had been hammering away via a personal vendetta in the media.

Clive, who as one of Australia's most prolific litigants must keep a whole army of lawyers' offspring well educated, might not be so happy, as the ads seem a little pointless now - not that we think anyone other than Clive ever took any notice of them. Clive has actually had a pretty poor week really, having exited Federal Court today and ordered to pay $1.5 million for copyright infringement of Twisted Sister's song "We're Not Going To Take It".

Delivering her decision, Justice Katsmann gave Clive both barrels, including words such as "ludicrous, fanciful, high handed, contemptuous, false evidence, and concocting a story to exculpate himself". Namely that he made up the lyrics, and the tune was based on a Christmas carol. Or was that a fairy tale?

Ouch! However we doubt Clive was listening - more likely he was on his way to lunch.

Another high profile - and long overdue - exit this month was one James Mawhinney of Mayfair 101, rubbed out of financial services for 20 years by ASIC - so at least Shipton claimed one well deserved scalp before his exit. Not that the court ruling dented Mawhinney's self belief. Hedge Clippings received an email from him this week, still sporting the Mayfair 101 logo, which ran to 30 odd pages of self justification, and that the courts, and ASIC in particular, were the cause of his investors' losing millions.

Like Clive, Mawhinney never lets the truth get in the way of a good story.

Moving on.... Last week our research on the Top 20 Performing equity funds in Australia over one, three and five years created significant interest. We also indicated, as we normally do, that one of the best ways to reduce risk when investing in funds (actually, in anything) is to diversify - or in this case invest across multiple funds.

As such we analysed the performance of 2 portfolios made up of those funds as follows:

1. The four funds which made the Top 20 over all three time periods:

12-month return: 93.06%
60-month return: 21.46% p.a.
Std deviation: 16.51%
60-month Sharpe: 1.19
Largest drawdown: 27.32%

2. The eleven funds which made it in the Top 20 over three and five years; 

12-month return: 61.57%
60-month return: 21.24% p.a.
Std Deviation: 12.64%
60-month Sharpe: 1.49
Largest drawdown: 17.33%

Obviously the performance of both portfolios was excellent - they were after all in the Top 20. And equally unsurprising is the fact that the 12-month performance of those in the Top 20 over one year was higher. The important factor from a diversification perspective is the greater the number funds, the lower the risk, especially over the longer term.

A copy of the detailed tables can be found here.

News & Insights

Video interview with Michael Tobin from Vantage Asset Management

How to profit from the boom in batteries by Montgomery Investments Management

Hedge Clippings | Friday, 23 April 2021

At the end of March 2020 no one would have predicted the extraordinary rally in equities both globally and in Australia. 12 months later, equity based fund managers' performance statistics have finally shaken off the negative Covid-led returns of the first quarter of 2020. Buoyed by market returns of 37.47% for the ASX 200 Accumulation Index (AI) and an even stronger return of 56.35% percent for the S&P 500 AI, only 1.4% percent of managers failed to produce positive 12 month returns.

As a result of the exceptionally strong market, a higher proportion of funds than normal underperformed their relative index as shown by the chart below showing distribution of returns of all equity based funds:

As the risk statement and warnings in every offer document clearly states, "past performance cannot be guaranteed", equally true is the fact that past performance, particularly over the longer term, is one of the better guides to manager selection.

Given that the www.fundmonitors.com database focuses on "actively managed" funds as opposed to index tracking funds or ETF's, it is not surprising that there is an over representation of funds investing in the small to mid-cap sector, whether it be locally or overseas. Not only is there a larger numerical selection of companies in the small to mid-cap universe, but they tend to be high growth rather than value, and more likely to be unrepresented in broker research.

Our most recent analysis, Top 20 Funds: April 2020 to March 2021, can be found here. It covers not only the top 20 funds over one year, but also three and five years for a more balanced, or longer-term view. The relatively small representation of Long Short or alternative equity strategies, particularly over a 3 to 5 year timeframe is probably also explained by the extended strong run in equity markets.

Only four managers of the 12 with a five-year track record make the cut across all three timeframes: Acadian Wholesale Geared Global Equity, DMX Capital Partners, Forager International Share Fund, and OC Micro-Cap.

Of the 13 funds in the Top 20 over 3 years with a five-year track record, 11 also made it in the Top 20 over 5 years: Hyperion Global Growth Companies Fund (Class B), Jencay Australia Investment Fund, DMX Capital Partners, Loftus Peak Global Disruption Fund, Zurich Investments Concentrated Global Growth Fund, OC Micro-Cap Fund, Platinum International Health Care Fund (C Class), Acadian Wholesale Geared Global Equity, Collins St Value Fund, Forager International Share Fund, T. Rowe Price Global Equity Fund.

And, as noted earlier, only 12 funds in the Top 20 over one year had a five-year track record.

AFM's overarching and ongoing recommendation is not to invest in single funds. Diversification provides the greatest level of risk protection available.

News & Insights

New Funds on Fundmonitors.com

Video interview with Rob Hay from Collins St Asset Management

Risk, opportunity, and responsibility in the new ESG climate by Realm Investment House

More inequality. More grievances. More debts. by Montaka Global Investments

Hedge Clippings | Friday, 16 April 2021

Last week's Hedge Clippings began exploring the world of Cryptoland, which thanks to Coinbase's NASDAQ IPO this week has become front page headlines. Coinbase is valued at a mere $111 billion, more than that of Westpac ($93 billion) who were an early investor, and possibly in due course will become a crypto adopter in spite of CEO Bill King's opinion that Bitcoin is not a great store of value. Whoever said Australian banks are slow and conservative?

Some commentators have suggested crypto is a fad (that won't last) and a bubble. We're not going to try to argue about the valuation which may well be excessive - time will tell, but unlike many other early tech IPO's, Coinbase is profitable. But there's no doubt crypto as a currency will last, and evolve, AND in due course - if not already - become mainstream. With literally thousands of different coins other than Bitcoin, the infrastructure - the "picks and shovels" - will be essential to the everyday coin holder. We're reminded of those know-alls (who should have known better) who, when the dotcom bubble burst in early 2000, predicted the internet was a passing fad, and we'd all better go back to "bricks and mortar".

Fast forward 20 years and try to imagine life without the internet? With the acceleration of technological change (in part assisted by the internet) and the adoption by banks and financial institutions, it will take a fraction of 20 years for crypto to become part of everyday life - as for an increasing number of people, it already is.

For us, change is to be embraced, even if the learning curve is steep.

And now back to the past and present - or at least the economy, and funds' performance over the past 12 months.

Australia's economic performance over the past 12 months has been extraordinary - even the most optimistic treasurer wouldn't have dreamed of a 5.5% unemployment rate and a record participation rate 12 months ago - and the market has responded with the ASX200 up 37.5% and the S&P500 up 56%.

Most equity fund managers (and if it comes to that, most investors) will be happy to see March 2020 returns wiped from their 12 month performance history, and as a result all but a handful of managers recorded a positive 12 month return. Some, however, have excelled.

A search of the top 20 performing funds across all equity strategies, and all geographic mandates shows returns of 86.94% (Forager International, Global Equity Long, Small Cap) through to 188% (Frazis Fund, Global Equity Long/short, All Cap). In spite of the top performing fund being long/short, we'd imagine the main driver of returns has been on the long side.

Of the top 20 only 5 have the ability to short, and only one is designated as investing in large cap companies, although a further 6 are listed as "all cap". This clearly shows where the action has been. Eleven have an Australia or Australia/NZ investment mandate, and only five are purely global - however that might be explained by the skew of the underlying AFM database.

There is always a caveat that one-year performances, whilst welcome and attractive, aren't the way to make an investment decision.

Looking at the Top 20 fund's three and five year results provides the following insight:

Four of the Top 20 don't have a three-year track record, making longer term analysis difficult, and a further four don't have five years. The average three-year return of the remainder have an average return of 13.4% per annum, with a range of -11% to 27.56%, whilst for five years the average return is 15.3% with a range of -2.96% through to 23.96

At the other end of the scale - the bottom 20 - only four failed to make a positive return, and those were dominated by long/short managers, as were the majority of the balance of the underperformers.

It's wise (or rather, essential) to remember that all (or nearly all) funds have their day, and that investing in a portfolio of funds across strategies and asset classes is the best approach to risk management.

News & Insights

Video interview with Monik Kotecha from Insync Funds Management

One Year On - What Did We Learn? by Marcus Today 

Hedge Clippings | Friday, 09 April 2021

We're not sure if it's because we're slow on the uptake, old, or ultra conservative, (or all three, along with plenty of other problems to boot) but here at Hedge Clippings HQ we've been trying to get our head around cryptocurrencies for some time. With, we might add, considerable difficulty.

A few years ago we might have been excused for thinking Crypto would always remain in the realm of the dark web, but it turns out we were living in the proverbial dark ages. Crypto is now mainstream, and currently has a market capitalisation of around US$2 trillion in "old money", led by Bitcoin, which at US$1 trillion (and rising) accounts for around half of that total value.

It appears we weren't alone in that old school thinking. Amongst mainstream converts are Morgan Stanley, who not long ago claimed "bitcoin's real value could be zero" before recently becoming "the first big US bank to offer its wealthy clients access to Bitcoin funds".

Or this old headline, "Bitcoin is a fraud that will blow up, says JP Morgan boss", which has now changed to "JP Morgan says investors could make Bitcoin 1% of portfolios". To be fair we're not sure if the "previous" quote was from current JPM CEO Jamie Dimon, who is currently very bullish on the prospects for the US economy over the next two years, with or without Bitcoin.

Not to be outdone in the "poor prediction stakes", Goldman Sachs put out "5 (presumably good) reasons why bitcoin is not an asset class, nor a suitable investment", before reportedly restarting "a cryptocurrency trading desk amid bitcoin boom". Or an ex-CEO of PayPal, who claimed Bitcoin "is useless as a payment mechanism and ridiculous as a store of value" before this headline: "PayPal's entry to crypto followed long build up in expertise" - and which we assume is why he's "ex" and the entry took place under a different CEO.

There are others, infinitely smarter than yours truly, but you get the point. Crypto is now mainstream, and more importantly is likely to become more so. It's even advertised on the side of Sydney's buses, and we presume, now it's safe to travel there again, Melbourne's trams.

But that doesn't help this dinosaur, who has always tried to keep up with technology and financial products with varying degrees of success, getting to understand the what, where and how of the cryptocurrency world. Theoretically Dr Google can help, but the learning curve is steep, and the language akin to learning Swahili in a crowded bar. And diving into learn more is worse than going down a wombat's burrow backwards than a rabbit hole.

For instance most people have heard of Bitcoin, but did you know it seems there are no less than 4,656 different "coins" as well as Bitcoin? Or that there's a thing called a Satoshi, worth 100 millionth of a Bitcoin? (How would George W Bush Jnr. get his head around calculating that?). Or that the folding stuff you might still keep in your wallet or bank account is known as "fiat money"? (me neither). There are literally hundreds of crypto exchanges, and to add to the 4,657 coins, derivatives galore. So you're either in the know and understand the jargon, or like us, playing catch up.

There are no doubt profits galore, and risks aplenty, particularly for the uninitiated, especially as the market is not only complex, but broadly unregulated, which no doubt has traditional exchanges and central banks - plus law enforcement agencies - concerned. And given that environment, many service providers such as prime brokers and fund administrators in Australia are reluctant to be the first to enter the market.

At FundMonitors.com we have probably been slow as well, given our self acknowledged lack of understanding of the sector - which might seem at odds with a service that began life over 15 years ago as an "eyes and ears information service into the alternative assets sector". However, - better late than never - the first "crypto" fund's online application (the Digital Asset Fund) is now available for wholesale investors on OLIVIA123 and the fund will shortly be added to the AFM database. In May we'll be holding an information and education session, both as an online webinar and a live event to try to answer all the questions you ever wanted to ask about Crypto, but didn't know where to start.

To pre-register, please contact us.

And on that note have a great week-end. We're off to that bar to learn Swahili.

News & Insights

New Funds on Fundmonitors.com

Video interview with Martin Pretty from Equitable Investors

The 4 Bubbly Pockets of markets showing heightened risk for investors by Ophir Asset Management

Making up the numbers by Evans & Partners

Hedge Clippings | Thursday, 01 April 2021

One would be excused for thinking that reports of hedge funds behaving badly is either a case of deja vu, or possibly even an April Fool's joke. Deja vu certainly, but a joke it certainly isn't. We're referring of course to Archegos Capital in the US, which is in the news for all the wrong reasons.

Archegos Capital's principal is none other than Bill Hwang, who last hit the headlines in 2012 while at hedge fund Tiger Asia when charged by the SEC for making US$17m in illegal insider trading profits, for which he was put on probation for a year, and he and Tiger agreed to pay the SEC US$44 million to settle the charges.

To be fair, US based Archegos Capital isn't a hedge fund, but a "Family Office", a technicality which allowed principal Bill Hwang to bypass US regulators' previous actions against him following his tenure and track record at Tiger Asia.

Hedge Funds are tightly regulated, while Family Offices are not. But one would have thought that his previous history would have - if not sent him to the slammer for a 2-5 year stretch - at least precluded him from working in the industry for a very long time, such as never again. Not a great record for the SEC, but they're not the only ones.

Goldman Sachs and others ceased doing business with Hwang for a while after the Tiger issue, but the lure of the significant fees available presumably overcame their reluctance, and they happily, it seems, resumed their relationship, but this time under the Archegos entity.

So much for increased compliance in investment banking! Japan's Mitsubishi UFJ Securities is expecting a loss of $300m "in relation to a US client" while Nomura and Credit Suisse are facing losses of as much as $2 billion and a "significant hit" to earnings respectively, without actually admitting Archegos was the client involved.

At AFM (and elsewhere) hedge clippings has always understood that while performance is important, it is also people and process - generally known as the "Three P's" - that govern due diligence decision making. We were obviously mistaken: Replace Performance with Profit, and provided that "P" is sufficiently large, to hell with the other two.

Hedge Clippings had a little rant a few weeks back about the process that allowed Mayfair 101 to fleece Australian (so called sophisticated) investors out of around $80 million, and the various ways of interpreting the difference between "investing" other people's money as if it was their own. In that case the investors might have been legally sophisticated in name only. Firms such as Goldman Sachs, Mitsubishi, Nomura and Credit Suisse have no such excuses.

Meanwhile, as a footnote, a spokesperson was reported to have said this is a "challenging time" for Archegos. That, we presume, was probably an understatement - or possibly the April Fool's joke.

And on that note, here's wishing all our readers a safe and happy Easter long week-end.

News & Insights

Video interview with Gary Rollo from Montgomery Investment Management

Policing the platforms by Fidelity International

Over The Inflation Hill by Jamieson Coote Bonds

Whoa-yeah, the divs are getting bigger by Plato Investment Management

Hedge Clippings | Friday, 26 March 2021

This time last year we had just experienced the bottom of the market, in what was (in hindsight) the sharpest and most extraordinary selloff, and the shortest subsequent recession, in history.

Looking back 12 months to the 27 March 2020 edition of Hedge Clippings clearly tells you three things as shown by the closing comments:

Firstly, the mood at the time:

"In 1987 the ASX fell 50%. In 2008 it fell by 54%. 2020 is shaping as being much more serious as it affects every sector massively (perhaps excluding medical).... So the economy in Australia has, depending on one's view, stopped, or is stopping, or will stop dead in the water. As much as the government supports businesses and households, the six-month lockdown as envisaged can only be reflected in company earnings, which are tied to equity prices."

Secondly, how wrong we were.

And thirdly, and most importantly, how effective the measures introduced at the federal, and in most cases, state government level were in avoiding an impending disaster. Medically we have been spared the levels of infection and mortality that affected - and continue to affect - the rest of the world, partly thanks to geography, but significantly due to Scomo's decision to close the borders, for which in certain quarters he was vilified at the time.

12 months on and the ASX200, which had fallen 27%, had by the end of February 2021 recovered all that and has now risen 6.48% over the ensuing 12 months. While many companies have suffered, others, significantly aided by government support, have produced record results.

Market pullbacks, or downturns, offer significant opportunities for smart investors and fund managers. The greater the fall, the greater the opportunity, and the smarter the investor, or fund manager, the greater the reward.

And while not universal, there have been some smart fund managers around: 42% of AFM's database of ~600 funds have outperformed the ASX200 Accumulation Index's 12 month gain of 6.48%, with the average equity based manager returning almost three times that amount at 17.41%.

Within that broad equity group there are standouts. The returns of the top 10 funds investing in Australian Equities ranged from 40% through to 65%, and unsurprisingly those investing in the small and mid cap space, and therefore more likely to be "long only", featured heavily.

Broadening the scope to include global funds - or funds investing globally - including those that invest in Australia and overseas, and the results are equally impressive, although no doubt assisted by the fact that the S&P500 rose 31% over the 12 months to the end of February, outperforming the ASX200 by 25%.

Singling out top performing funds can be dangerous as returns over the longer term can vary, and simply looking at returns, without analysing risk factors and KPI's such as volatility, Sharpe and Sortino ratios, up and down capture etc., doesn't tell the whole picture. Follow this link to be able to see all those numbers - and more - for almost 600 managed funds, courtesy of our current "no obligation" free trial.

What is interesting is to see the dominance of long only funds amongst the top performing tables. Hedge funds (equity long short, market neutral, etc.) have, with notable exceptions, found conditions more difficult in recent times. And even more recently - over the past two months - markets have at least paused or fallen, as the rotation from growth into value has taken hold.

It may well be that in 12 months' time we'll see some different names in the lists - or strategies - with Crypto emerging as a mainstream alternative that even the conservative end of town is starting to take interest in.

Watch this space.

News & Insights

China's 14th Five Year Plan by Arminius Capital

Are Cyclicals the New Defensives? by Platinum Asset Management

Policing the platforms by Fidelity International

Hedge Clippings | Friday, 19 March 2021

After all the concern about rising bond yields and the threat of inflation, Jerome Powell, the chairman of the US Federal Reserve announced after the FOMC meeting this week that the plan is to keep interest rates where that are (near zero if you hadn't noticed) for the next three years.

This was not unexpected, but to actually state this is where interest rates will be until 2024 is extraordinary. Once upon a time Central Banks adjusted interest rates in response to the economic conditions prevailing at the time, or about to occur. Now it seems Central Banks set policy, and the market, or economic conditions, adjust to policy.

So much for the "free market" and capitalism. It sounds more like the message we'd hear out of the Soviet system in previous days, or China more recently.

Unsurprisingly, Powell said the recovery to date is due to low rates and the billion$ being thrown at the recovery. Hence, he stated that policy will remain "accommodative" until his employment and inflation goals are met. Those goals being maximum employment and stable prices.

Of course, that may be where the Fed's controls begin to falter. Although he expects inflation to rise above 2% in the near term, he wants to maintain it at an average of 2% in the longer term. But recovery, massive stimulus and full employment don't sound like a recipe for no wage rises, and therefore no or very low inflation.

Powell may well be able to keep a lid on things in the near term, but the likelihood of the economy and market dancing to his tune in the longer term are less certain.

News & Insights

Video interview with Alex Lee from Laureola Advisors

Is this the global macro landmine no one is talking about? by FiftyOne Capital