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

Hedge Clippings | Friday, 30 July 2021

As we noted last week in Hedge Clippings, the twelve months to 30th of June were extraordinary, with the ASX200 only recording 1 negative month. As we've come to the end of July that record has been extended, and should it continue through September it will make it 12 continuous positive months. Hopefully this doesn't put a jinx on the market's positive run as it heads into reporting season, and it can overcome the effects of current lock down restrictions.

As welcome as these positive numbers are for most investors, they distort the longer term numbers and averages in much the same way as the drawdown of over 25% suffered at the start of the pandemic. Understandably top-performing managers, and their investors, are happy with their returns, but it does make it more difficult to evaluate longer-term performance, not only of individual funds, but also of specific sectors.

AFM's analysis segregates funds in many different ways, such as strategy and geography, but to really compare funds, it can be necessary to drill down to specific "peer groups" to do so - in other words, to compare "apples with apples" and "oranges with oranges". Even this can be easier said than done, particularly in the "Alternatives" sector, which can see a crypto fund placed into the same asset allocation "bucket" as life settlements.

We might leave that debate for another day, except to say one of (in fact the only) common feature between the two is their low (or zero) correlation to traditional asset classes, and therefore capacity to provide welcome diversification when equity markets do, as they eventually will, return to a more normal pattern of returns and volatility.

In the meantime let's look at more traditional investments, and equities in particular, where Peer Group comparisons really come into their own, particularly when looking at fund selection via a sector, rather than an asset allocation lens.

Returns are always on top of most investors' minds, closely followed by risk - generally most easily judged by the Sharpe ratio which measures the degree of risk - as determined by standard deviation or volatility of monthly returns. So while Australian Equity Small to Mid Cap funds in Australia have clearly performed first or second amongst the six Equity Peer Groups over 1, 3 and 5 years, they have done so with a lower Sharpe ratio - and therefore with greater risk - ranking 4th over each time frame.

Averages are of course dangerous, and drilling down into the fund list will show a wide variance between the 79 funds which make up the Australian Equity Small to Mid Cap Peer Group in AFM's database, with returns which over the past year have ranged between +13.5% through to +130%, and over 5 years from +2.57% to +22.71% per annum.

News & Insights

Interview with Collins St Asset Management

Is Greed Feeding the Macro Environment? by Jesse Moors from Spatium Capital

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

Inflation: Raising the Stakes by AIM

Hedge Clippings | Friday, 23 July 2021

Many years ago Hedge Clippings used to wait with bated breath to hear the latest result of the Top 10 records on the hit parade. Nowadays of course he wouldn't know any of them, let alone listen to any of the current crop, even though he can still sing along to the songs of his youth. (Notice how there's no clue to the decades involved, and with good reason!)

But it goes to show that everyone loves 'top this' or 'top that' tables which, while they may change, never go out of fashion. The finance sector is no different, whether the focus is on individual equities, asset classes, superannuation funds, or in AFM's case, managed funds. As such, at the end of each financial year (and calendar year if it comes to that), this creates the opportunity to review the best performing funds in various categories.

But the 2020/21 financial year was one for the books. Not only did the ASX 200 Total Return Index record its 3rd best performance over the last 25 years, but it was also the first time since the 1996/97 financial year that the index had only one month of negative performance.

To put that into context, in the financial years between 1997 and 2021 the index averaged 5 negative monthly returns each year, with an average negative monthly return of -3.59%, coincidentally close to the only negative month last year, when in September the index recorded a negative -3.66%.

It probably comes as no surprise that 2020/21 was an extraordinary financial year given the world we live in, but it is worth digging deeper into the numbers to get a feel for how extraordinary it was.

• In the year to June, the index returned 27.80%. Small and mid cap funds returned an average of 41.42%, compared to the large cap sector where the average was 29.1%.
• The top 10 managers returned an average of 84.55%.
• Funds in the highest quintile (or one fifth of the 160 relevant funds) returned an average of 60.16% for the year.

Exactly 100, or 62.5% of Australian based equity funds outperformed the ASX200:  

• These funds out-performed by an average of 15.31%.
• As might be expected, 87 of these were 'long only' leaving only 13 long/short funds that outperformed.
• 7 funds returned positive returns each month.

Of the 60 funds that failed to beat the index:

• The average return was 20.62%.
• Only one fund failed to register a positive return (-2.94%).
• 32, or 53% of the funds, were long only, leaving 47% of the 'underperformers' in the equity alternative category.

Clearly such short-term performance has to be viewed in a broader context, but the 2021 financial year will affect the longer term performance of all funds, investors and advisors' portfolios for some time. This should not be ignored when assessing managers, and while short term return tables are great for a manager's bragging rights, they are only part of the longer term picture.

For those interested in doing this sort of analysis themselves, we encourage you to explore our Custom Statistics tool. Watch this video for a short demo. 

And on that note, enjoy the locked-down weekend, and stay safe. Tune in to your favourite sounds, turn up the volume, and drown out the COVID news.

News & Insights

What to learn from the last year's IPO Winners and Losers by Montgomery Investment Mgt

Global megatrend observations by Insync Fund Managers

Hedge Clippings | Friday, 16 July 2021

"Words are words, and promises are promises, but only performance is reality"
Harold S. Geneen, former president of ITT Corporation.

When looking at managed funds, or any financial product, Geneen's quote is increasingly relevant. It probably holds true for politicians as well, but maybe best not to go there just now...

When looking at the performance of managed funds it is not only important to get accurate information, it is equally important to be able to understand and interpret it correctly, and in context.

For instance, a fund that has provided a return of 15% p.a. over the past five years would reasonably be understood to have good performance. But performance compared to what? What if the fund's underlying index or asset class has returned 20% p.a. over the same period, or another fund returned 15% p.a. but with lower fees?

A fund might have outperformed its index or benchmark, but has it performed in line with, above, or below, similar funds with similar strategies and similar geographic mandates - in other words, its Peer Group?

Looking at a fund's total return is only part of the solution - there are a range of key performance indicators that should be taken into consideration.

Next, let's look at consistency. The fund may have returned 15% p.a. on a cumulative basis over 5 years but it's rare - although not impossible - to consistently return 15% for each of those five years simply because market conditions vary. The volatility of those returns - measured as standard deviation over either a monthly or annual basis - is a prime consideration for most investors as it indicates potential risk of loss of earnings or capital.

Generally speaking, the higher the return, the higher the risk, so the Sharpe ratio is used to measure the return relative to the level of risk (volatility) that is being taken.

The Sharpe ratio (named after William Sharpe, later Professor Sharpe) was developed in 1966 to try to provide a single measure to describe the excess return an investment provides for the extra risk (volatility) involved. For those in lockdown and looking for some light reading over the week-end, the details can be found here.

As economists will do, (and noting Hedge Clippings does not lay any claim to being one) others of the same profession developed alternative measures: The Sortino ratio for instance, named after Frank A. Sortino, effectively removes upside volatility from the equation, and therefore only measures downside, or negative volatility. (Further details here)

Both Sharpe and Sortino each attempted to create a single number to allow any investment in any asset class to be measured against any other investment, irrespective of asset class, although in reality it is better to use it as a measure of similar asset classes, so aspects such as liquidity and length of investment can be taken into account.

When looking at managed funds, both are useful but can equally disguise other KPI's - depth and length of drawdowns for instance. For many investors, holding a 'losing' investment, or a fund which has a large negative return, for more than a few months, the situation can be distressing and outside their level of risk tolerance. So let's add size and length of drawdowns to the KPI equation.

Still going? How about Up Capture and Down Capture? Two ratios that are less well used or understood, and which are particularly relevant to potentially volatile assets such as equities.

There are different ways of calculating Up and Down Capture, but www.fundmonitors.com measures the cumulative performance of the underlying market in positive months, and measures the cumulative performance of the fund when the market is positive against that. In rising markets a number above 100% indicates a fund which outperforms, and less than 100% indicates it underperforms.

Possibly of more interest to risk-averse investors is the Down Capture equivalent which measures how a fund performs in negative markets - again on a cumulative basis. Any number less than 100% is good, and a negative number indicates a fund which typically rises in negative markets.

Each of these measures help the investor or advisor look through the words and promises of the fund manager or their advertising, and 'lift the lid' to get a real understanding of how each fund performs.

But wait - there's more! Where and how a fund fits into an overall investment portfolio and provides low correlation to achieve diversification and reduce risk needs to be added to the analysis equation.

After all, "only performance is reality".

News & Insights

Video Interview with Richard Ivers of Prime Value Asset Management

Video Interview with Robert Swift of Delft Partners

Why You Should Look at Capture Ratios When Assessing Fund Managers article by         Australian Fund Monitors

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