Hedge Clippings | Friday, 07 August 2020

Although Hedge Clippings tries to steer a steady course between seeing the opportunities that abound when looking into the future, and concerns about the risks that are all too apparent, the current relentless stream of seemingly negative news particularly re COVID, does provide some challenges.

Possibly it is the reversal into lockdown in Victoria and the seemingly impossible task of eliminating COVID there that fans the negativity. Meanwhile, on the positive side, the relative absence of infection in SA and WA to the West, and Queensland to the North (with NSW hovering dangerously in the middle - literally) gives one confidence, albeit with some trepidation.

And so it is with many of the fund managers we talk to or meet. Actually, we don't meet that many of them in the current environment, but Zoom has become such a way of life and business that it's now a new normal. Depending on their view, and no doubt their strategy and current performance, they're either a glass half full, or a glass half empty of confidence.

Occasionally there are those who, far from being merely half full of confidence, are overflowing with it. This may be due to their age, or relative youthfulness. It might be their fund's performance - it being difficult to remain confident while losing other people's money. It might be the sector they invest in - which in the case of tech and disruption probably equates to good performance.

But more likely, and more often than not, it's about their attitude and approach, which in turn no doubt dovetails with their fund's strategy and therefore performance. We're in a changing world where, for example, Tesla is worth more than Ford and a range of other manufacturers because it is looking to the future and, love him or loathe him, is run by one of the great enthusiasts of the corporate world. To be long Tesla requires conviction, and an eye for the future. Doubtful? You're probably short, and financially painfully so.

Next week we're interviewing a young and exuberant fund manager, Michael Frazis, who embodies the positivity and enthusiasm referred to above. Michael's fund is just 2 years old, and it endured a torrid first six months in 2018 before posting returns of 24% in 2019, and 25% YTD in 2020. There are others who embrace change and disruption as a strategy or theme. Invariably they're full, or overflowing, with positivity.

Finally for this week, a mention of a book - available as an audio download - we've recently read - or listened to - called Black Box Thinking by Matthew Syed. Highly recommended. And certainly likely to raise the positive views in any pessimist!

News & Insights

Will the US Dollar Become Another Casualty of COVID-19? by Arminius Capital

Hedge Clippings | Friday, 31 July 2020

The rapid rise in the number of cases of COVID in Victoria, and to a lesser degree (so far) in NSW, is a stark reminder - if needed - that there's a long and winding road ahead before we're out of the physical and medical dangers of the pandemic. Far from the numbers declining, or even being under control, they're increasing rapidly, while in the US and Europe they seem disastrous.

And just when it looked as if the government would be able to start selectively weaning sections of the community off their Job Seeker and Job Keeper payments at the end of September, there's every chance that, in some states at least, they're going to become more dependant. And with Victoria and NSW having the largest populations, the flow-on effects of border closures will prolong the impact and damage on the tourism sector in Queensland in particular.

In the short term, investors and fund managers will not only have to consider the geographic effect on companies, but will also have to navigate the upcoming reporting season. In the longer term, governments, and all who live under them, will have to consider and navigate the debt mountain that COVID has created.

These are sobering, and worrying times, but as always there will be winners and losers. From the investor's perspective, investment and fund selection decisions are going to be more critical than ever. High yielding investments - provided they're not also high risk - will appear on more approved product lists. One would suspect that dividends will be reduced further, with the trickle-down effects on investors' spending habits having further negative effects on the economy.

Just as well - there's not much most Victorians can do, or places they can go, to spend what income they have anyway. Maybe one of the few bright spots will be Dan Murphy's (and others') online ordering and delivery services...

Which reminds me, it's Friday, and nearly drink o'clock.

News & Insights

The Rise of Restoration: A Focus on Oil and Economic Reality by Nikko Asset Management