Hedge Clippings | Friday, 09 July 2021

If it were done when 'tis done, then 'twere well
It were done quickly:

Macbeth, Act 1, Scene 7

While the "it" referred to in the above quotation was fictitious, (namely Macbeth's murder of the King of Scotland) the underlying message has stood the test of time. It is doubly relevant today as New South Wales battles an outbreak of Covid, which, admittedly given the benefit of hindsight, would have been less of an issue if the lockdown approach taken had been "go hard and go early".

Whilst it would have been a difficult, and in some circles, unpopular decision, it might have prevented the spread, and longer term consequences, including the inevitability that once out in the community, a harder and longer lockdown would be required.

With the benefit of hindsight, however, there have been enough examples - particularly in Victoria - where letting the cat out of the bag is a dangerous strategy. More of a hope really, in spite of the best endeavours of contact tracers, given the low levels of vaccination, and public complacency.  And hope, as we know, is not a strategy.

Letting it rip and learning to live with Covid might be a strategy, but not a very smart one given NSW would then have interstate borders slammed shut until vaccination was complete, or sufficient numbers had been infected, and hopefully recovered. That would have been unlikely prior to Christmas in spite of the additional Pfizer doses due to arrive in the next week or so.

It's been a tough eighteen months or so, and as noted by Charlie Aitken in the wide ranging - video interview we had with him earlier this week, one thing he wasn't expecting since we last caught up, was to be back in lockdown, talking over Zoom. Other topics covered apart from the relative success or otherwise of pandemic responses here and overseas included inflation, interest rates, China, and what he looks for in a company to make it a good investment.

Elsewhere this week we held a webinar with Michael Tobin from Vantage Asset Management to look at opportunities in the mid-market ($300-$500 million) Private Equity space. For all but the largest investors such as family offices or industry super funds, this is a difficult market to access.

In addition to the minimum ticket size, proper due diligence on the target companies is particularly onerous (and necessary). Equally important once invested, ongoing management support is frequently required to assist and ensure that the opportunities the additional capital offers are maximised. Finally, institutional private equity funds have the hard headed - expertise to maximise value when exiting the investment.

For smaller investors wanting exposure to Private Equity, the options are limited. When investing in private companies most investors either don't have the knowledge to do the due diligence, or the necessary information is not available. Once invested, few small investors have the skills, inclination or time to then actively involve themselves to assist the company, even if invited to do so. And finally, diversification is one of the best methods of risk mitigation, a benefit Michael was keen to emphasise during the webinar.

To watch a recording of the webinar please click here. It runs for about 45 minutes all up, including questions, so whether you're in lock down or otherwise, feel free to take some time to watch.

Meanwhile enjoy the weekend and stay safe.

News & Insights

Webinar - Private Equity with Chris Gosselin and Michael Tobin of Vantage Asset Management

Video Interview with Charlie Aitken of Aitken Investment Management

What Are Central Bank Digital Currencies? by Arminius Capital

Hedge Clippings | Friday, 02 July 2021

Approximately eighteen months since it first emerged (depending on when you started the clock ticking) COVID has dominated and changed the world forever. With the occasional exception, such as the outbreak we're currently experiencing, Australia has fared better than most other countries.

Our borders were closed early - which certainly saved widespread infections, and all subsequent outbreaks have, one way or another, been triggered by missteps relating to returning travellers. As such our borders have been - and continue to be - closed but somewhat porous, and there's a strong case for arguing they should be tightened, in spite of the personal cost for the minority unable to enter, or the inconvenience to those who'd like to travel overseas.

Australia has low vaccination rates - as does New Zealand - in large part because we had low, and for long periods, no community transmission. Complacency took over, coupled with unforeseeable issues relating to the AZ vaccine - chosen as it could be manufactured locally, ensuring security of supply - and we're paying a price for that. Yet it seems in some quarters it is fashionable to say, "I'd be (or am) better off in New York or London".

According to https://www.worldometers.info/coronavirus/, US deaths from Covid to date are 620,645, and in the UK deaths have reached 128,162. On 30th of June alone, there were 392,008 new cases and 8,505 deaths worldwide, and at current levels, deaths will reach 4 million before this time next week.

Australia, which sits in 124th place globally, with just over 30,684 cases to date (including 40 yesterday) and sadly 910 deaths, is in a much better place, even if the vaccination rate is lagging as frustration rises.

With the exception of the occasional, temporary, and generally localised City or State based lockdowns, the majority of Australians are the envy of most other countries.

Meanwhile, to markets:

In spite of, and paradoxically partly because of, COVID, the ASX200 Accumulation Index has risen just under 28% over the 12 months to the end of June, in line with Global Equities, and has only had one negative month in that time. The S&P500 Total Return performed even better - up 40% over 12 months, in spite of 3 of those months being negative.

While too early for meaningful data from most fund managers in June, the clear winners to the end of May 2021 were those investing in Australian Small to Mid Cap stocks (+38% over 12 months vs. 28% for the ASX200), and Global Small to Mid Cap funds, (up 35% over 12 months vs 40%  for the S&P500, and 22% for Global Equities).

Given the outperformance of the Small and Mid Cap sector, which in AFM's database covers 71 funds, with 12 month performances to May ranging from 19% through to 112%, we spoke (via Zoom) with Dean Fergie from Cyan Investment Management, whose Cyan C3G Fund returned almost 47% over 12 months, to discuss the sector. Given the number of IPOs that have and are yet to come to the market, we asked him how they manage to pick the winners from the losers, when meaningful and accurate information can be difficult to find before the listing.

His answers, as always, were illuminating: The benefits of experience coupled with a wide network of brokers mean they see most, if not all, potential IPOs coming to market, in turn allowing the professional manager to be selective, a luxury or opportunity the individual investor doesn't have.

You can see the full video here.

On a similar theme, next Tuesday at 4:00 PM Michael Tobin from Vantage Asset Management will be our guest for a Webinar to discuss the Private Equity sector. Traditionally the best Private Equity or PE opportunities are reserved for the institutional markets. This leaves smaller investors to choose between early stage "angel" investing, or trying their luck in the IPO market - both of which can generate good returns, but with a high potential failure rate.

You can register for the webinar here.

And on that note enjoy the weekend, and stay safe, locked down or otherwise.

News & Insights

Webinar - Private Equity with Chris Gosselin and Michael Tobin

Video Interview with Dean Fergie of Cyan Investment Management

Does Higher Volatility Translate into a Higher Return? by Australian Fund Monitors

Hedge Clippings | Friday, 25 June 2021

Hedge Clippings in Lockdown as the EOFY approaches!

Last week's Hedge Clippings referred to the Federal Reserve's warning that inflationary pressures would bring forward interest rate rises to 2023, and that equity markets would react accordingly.

Which they did - for one solitary trading session - and then it was back off to the races with the S&P500 scaling new heights, along with the Nasdaq which hardly even skipped a beat. The ASX200 didn't fare quite as well, thanks to the COVID outbreak in Sydney's Eastern Suburbs which is threatening to lock parts or all of the metropolitan area down, and dampen the complacency that seemed to be the norm just a couple of weeks ago.

If nothing else it might at least encourage more Sydney-siders to get vaccinated, which, when there didn't seem to be much risk of catching COVID, hadn't seemed to be much of a priority, and now provides them a better understanding of what Melbournians have been putting up with off and on for the past year or so.

Elsewhere cryptocurrencies have continued their wild swings, with Bitcoin falling below $30,000 (from over $60,000 in early May) momentarily as China announced a crackdown on crypto miners, and various central banks indicated an interest in the space - one way or another. While the volatility will damage some crypto fund's returns, others such as Digital Asset Fund (Digital Opportunities Class), managed a return of 28% for the month.

With equity markets still powering towards the end of the financial year next Wednesday, FY2021 results for the ASX and S&P 500 will re-write the record books, as 2020 and 2021 re-write the history books. To the end of May, the ASX200 Accumulation Index rose 28% over the previous 12 months, and the S&P 500 rose 40%, and the Nasdaq closer to 50%.

Against this backdrop, 95% of funds in the www.fundmonitors.com database have provide positive returns over the past 12 months to May, and 62% of equity based funds have outperformed the ASX200 over the same period.

When the results for June are tallied (and assuming no capitulation over the next few days), these numbers will no doubt result in some happy investors - and happy fund managers - at EOFY drinks.

In Sydney at least, without singing, dancing or shouting to celebrate!

News & Insights

Webinar - Private Equity with Chris Gosselin and Michael Tobin

Private Equity: Why Exit Strategies Are Key to Performance by Vantage Asset Management

Hedge Clippings | Friday, 18 June 2021

Last week's Hedge Clippings warned that while the economy was going "gangbusters", sooner or later there would be an uptick in inflation, and actual (or expectations of) inflation would then create upward pressure on interest rates.

On cue, the US Federal Reserve this weeks signalled that it has adjusted its outlook for inflation, hinting that it expects to increase interest rates by the end of 2023 as the post COVID economy gathers pace, and not 2024 as per their previous thinking.

While not everyone agrees that the inflationary pressures will be permanent, equity markets will certainly take notice.  Whether this is a bad thing or not depends on one's point of view: Markets have also been going gangbusters over the past year or so, and in fact, apart from the short sharp dip as COVID hit, have been on a QE/cheap money binge for almost a decade.

Whilst nobody likes to see equity markets retreat into bear market territory, sometimes a correction or two along the way prevents things getting overheated, and overheated markets tend to create greater problems in due course. Just remember 1987, or the lead up to the GFC, when on both occasions the market "corrected" by about 50%.

We are not of the view that inflation will become rampant, as given the levels of household and corporate debt even a small increase in interest rates will have a significant impact on the economy. Interest rate moves rarely - if ever - occur in isolation, so even two rate increases of 0.25% will, relatively speaking, be significant from current levels.

And 2023 - if that's how long it takes - is still a long way off, but there's no doubting the Fed has raised the starter's flag. Of interest will be the minutes of this week's meeting, due to be released on July 7, followed by the next meeting of the FOMC due in November.

Markets are forward looking, and will deal with any signals from the Fed as they normally do. We suspect most active fund managers are keeping a close eye on their risk levels as a result. Passive funds - and therefore their investors - don't have the same flexibility, and they will rise and fall in line with the market. Given the weight of money that has flooded into index and passive funds over the past 5 years or more, the risk is that paradoxically markets will be more volatile than they might normally be.

Whatever "normal" is.

News & Insights

Video Interview with Alex Lee of Laureola Advisors

A disastrous approval by Frazis Capital Partners

Everything is so expensive by Darling Macro

Hedge Clippings | Friday, 11 June 2021

The Economy's going gang busters - inflation to follow?

By all accounts the Australian economy is going gangbusters. That's probably not a term widely used in economic lectures or textbooks, but we don't propose to enrol at the local university, or purchase such books, to find out. Quite simply, all the signs point that way.

For instance, this week's headlines include this article on Australia's business activity reaching new highs in May. It's not only a local trend, as the global economy is doing the same: "World Bank sees 5.6% global growth in 2021, best since 1973..."  Or from Reuters, "US job openings hit record highs in April..."

One reason of course is the bounce back from depths of despair the economy seemed to be in during the first half of 2020. Much of it is due to the massive stimulation measures introduced by governments, and adopted by central banks. And central banks have been printing bucket loads of money for over a decade, and have lowered interest rates to a point where property prices, along with equity valuations, are at all-time records.

And the Australian housing market isn't the only thing that's unaffordable. According to this report quoting the Bank of England's chief economist, Britain's housing market is "on fire". 

The question is, will this all end in tears? Doomsdayers have been predicting this for much of the last decade, although to date they've yet to be proven correct. The danger of course is that when - or if - the central bank intervention does come to an end, the debt mountain, both public and private, will be even larger than it was when they first flagged the problem.

Theoretically the debt mountain can get a lot higher yet, were it not for inflation which has been dead, or at least dormant, for a decade or so. Ironically it was high inflation that caused economies to go into a tailspin back in the 70's and 80's, and having put it to sleep, central banks have been trying to revive it - gently - for the past few years.

With a revival of inflation will come an increase in interest rates, and the debt mountain will, for both the public and the private sector, become a repayment hangover to end all hangovers. Deutsche Bank this week released a research report entitled "What's in the tails? - Inflation: the defining macro story of this decade" which contains a stark warning that the potential for higher inflation will bring a return of boom/bust cycles over the next few years.

If you would rather see the pictures to get the point, below is a chart of both Chinese PPI (blue) and US CPI (red) over the past 4 years. Having exported deflation for the best part of the last 20 years, the jump in the index of Chinese consumer durables is a clear indication of the road ahead.

As the Insights article from Delft Partners below points out, Deutsche Bank are by no means the only ones warning about the dangers of inflation caused by the robust economic activity. Delft quote over a dozen leading US corporates across a range of sectors confirming inflation is in the pipeline.

Or should that be "in the Priceline?"

News & Insights

Video Interview with David Costello of Magellan Asset Management

Why Does Private Equity Outperform Listed Equity? by Vantage Asset Management

Address a Societal Need While Generating Returns with Life Settlements by Laureola Advisors

Investing During This New Paradigm by Delft Partners

Hedge Clippings | Friday, 04 June 2021

Each Friday we ponder while considering the topic for the week's Hedge Clippings. When Donald Trump was in office, he was generous enough to provide plenty of fodder, or at least food for thought (one way or another). For the past 15 months or so COVID-19 has dominated the news - and in fact has dominated all our lives, as well as the global economy.
 
Other themes have come and gone, while some - rising inflation and potential interest rates for instance - remain bubbling along below the surface, waiting their turn which will, sooner or later, arrive, we suspect, with a vengeance.
 
One theme that has gained traction in recent times has been the world of digital assets, or cryptocurrencies. Until recently Hedge Clippings would rightly have been considered a dinosaur when it came to crypto, but the level of commentary over the past six months or so has risen to such an extent that interest, and information, is now available. The difficulty is, and remains, finding information that is easy to understand.
 
To begin with, the language surrounding crypto is foreign to most investors, particularly those over 40. Much of the hype comes from those who, genuinely or otherwise, have a commercial interest in selling something - be it a new car, a new trading system or platform - and therefore could be viewed as being biased, or wanting to impact the market one way or another.
 
This week Fund Monitors held a webinar on the subject and were joined by Clint Maddock from Digital Assets Funds Management (DAFM) to try to lift the level of understanding for those interested or intrigued by the opportunity, but unsure where to start or who to listen to. The subject is complex, the risks considerable, but what emerged was that there are also opportunities to achieve returns without taking the levels of directional risk symptomatic of Bitcoin and other digital currencies.
 
One issue highlighted by Clint was that of counterparty risk in a largely deregulated and emerging market, and dealing globally with parties with limited history and track record. Overnight the Guardian reported that up to 50 companies in the UK dealing in digital assets such as Bitcoin could be forced to stop trading immediately after failing to meet the UK's anti-money laundering rules.
 
For the average investor - even those considering themselves to be sophisticated or professional traders - this makes investing in digital assets somewhat like pinning the tail on the donkey.
 
Clint's background, gained over 17 years, is in algorithmic high frequency trading (HFT), which given that crypto currencies now number almost 10,000 and trade 24/7 across literally hundreds of exchanges would make DAFM ideally suited to focus on this market, its inefficiencies and volatility, using computer algorithms and HFT to trade up to 20,000 times per day, without directional risk.
 
You can view a recording of the webinar (approximately 30 minutes) here.
 
For those who think the disruption of digital assets is a fad, or will pass, remember the end of the dot-com boom over 20 years ago. Then only around 10% of the world's population had access to the internet, and around the same level had a mobile phone. Both are now over 90%.
 
Or consider online banking, when this week ANZ Bank announced only 8% of their clients used a branch as their sole interaction with the bank.

News & Insights

Manager Insights: ESG with Longlead Capital Partners

Ivers Steady on Wild Ride During First Three Years by Prime Value Asset Management

The Six Sectors We Favor Most as Market Sentiment Shift by State Street Global Advisors

Hedge Clippings | Friday, 28 May 2021

Crypto goes mainstream - and to the footy!

Last week's Hedge Clippings stated that Crypto is here to stay, irrespective of the recent volatility in the sector, or Warren Buffett's disbelief and disdain for the sector. This week that view has been reinforced with an article in financefeeds.com regarding the release of a research paper by Mathew McDermott, global head of digital assets at Goldman Sachs no less, that they now consider Cryptocurrencies to be an "investable asset".

Without being overly cynical, Goldmans are well known for being at the forefront when it comes to investment banking trends - particularly if it helps their bottom line - and they'd no doubt like to keep it that way. But it does reinforce the fact that the level of interest in this emerging sector is sky high, particularly as two AFL clubs have announced sponsorship deals with crypto exchanges - the Melbourne Demons (CoinJar) and the Western Bulldogs (CoinSpot).

Again the cynics might recall that the Sydney Swans were once backed (actually owned) by medical entrepreneur Geoffrey Edelsten, before being sold back to the AFL back in 1988 for the princely sum of $10, but that probably goes to show that the key to any trade is in the timing.

But we digress. Goldman's McDermott was quoted as saying discussions with institutional clients are revolving "around how they can learn more on the topic and get access to the space - as opposed to questions around what Bitcoin or cryptocurrencies are - which was the main topic just a few years ago."

What has become clear is that while all coins are potentially hugely lucrative, they are equally hugely volatile, and therefore risky. So when investment banks' trading desks, institutions and hedge funds show interest, it is not just to take a punt, but to work out how these markets work such that they can use their knowledge of trading and financial instruments to make attractive returns, with limited risk.

This week we were fortunate to be able to sit in on a presentation by Clint Maddock and Mike Gilbert, co-founders of the Digital Assets Fund, to a group of private investors (interestingly none by our estimation under 50 years old), while he explained the complexities of the market, and how utilising high frequency trading across carefully selected coins and exchanges offers the opportunity to take the directional risk out of crypto trading, while retaining the potential for attractive returns.

To learn more, and hear more from Clint as he discusses the sector, register for our Crypto Currency Webinar to be held next Thursday, June 3rd at 4:30 PM.

News & Insights

Interview with Longlead Capital Partners

Australian Private Equity Well Positioned to Outperform by Vantage Asset Management

Why we sold out of Redbubble by Montgomery Investment Management

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