Hedge Clippings | Friday 01 November, 2019

An article today on Financial Standard quoting Rainmaker data reports only 10% of Australian Large Cap equity funds outperformed the market in the 12 months to 30 June.

Aside from the fact that the information is a little out of date (see chart below for AFM distribution of returns data to the end of September - all funds all strategies), large-cap equities is a hard space to significantly outperform, particularly in the current environment. Large cap stocks dominate the market and drive its overall return. There are numerically more opportunities OUTSIDE the ASX Top 20 or Top 50 or even the Top 200 even though their volatility might be higher. And outside the Top 200 companies are flying well beneath broker's research and with significantly higher growth opportunities.

AFM's data above shows around 20% of all funds outperformed the ASX accumulation index's 19.29% return over the past 12 months. It's worth remembering that 19% is a pretty impressive return as well - nice to have, but investors can't expect that every year. However, as we're never tired of pointing out, that's an average, and averages mask the real outperformers - and the underperformers.

Moving on to underperformers of a different kind, Bill Shorten was well and truly outed this week - although for most people it didn't require an internal review by the Labor party to work out why he lost the unlosable election. No doubt complacency came into it, but the internal review seemed to spare former shadow Treasurer Bowen for his franking credit policy - and gaffe of telling voters if they didn't like it, vote elsewhere. Labor alienated key sections of the community, many of them committed Labor voters, but particularly retirees, and in Queensland, miners.

Hedge Clippings is heading to London next week, not necessarily to get a first-hand view of the Johnson/Corbyn election battle, although it will be useful to gauge the mood, albeit briefly. Of more interest will be the mood of the managed fund sector, and the potential impact of Brexit, or the possibility of a truly socialist government in the UK to boot. Given that voting is not compulsory, and with winter approaching, one would think the weather could have a significant impact on the outcome of a December 12 poll, as could the impact of dissatisfied voters moving to the minor parties.