Do Lowy and Murdoch know more than the rest of us? Undoubtedly!

Last week Hedge Clippings discussed the potential for the $8 billion in bank dividends due in December being fed back to the market as a driver of a Santa Rally, although given the current negative publicity banks are receiving, it might not all necessarily find its way back in to bank stocks themselves.  This week came news which might herald a similar injection (or more) from Westfield shareholders, although a fair proportion of that might be re-allocated to the property sector.

Not content with the Lowy's taking a profit after over 50 years getting to, and at the top of their game, Rupert Murdoch's announcement overnight signifies there could be a move by two of Australia's most successful businessmen that there's something afoot.  Could this be the start of the smartest money in town taking a "little" off the table while asset prices are high, and the market is still buoyant, or is it just a co-incidence?

Hedge Clippings suggests possibly a little bit of each, along with a number of other reasons. Apart from both being incredibly successful on the global stage, neither are getting any younger, although there's no suggestion Murdoch is stepping back from the fray. Both have built and are/were at the helm of businesses which having benefitted from massive change over their tenure, are facing even greater pressure from a change in technology going forward. With nothing left to prove, why not cash in some chips while there are willing buyers?

In Lowy's case he also referenced the increasing burden of reporting and compliance in an increasingly regulated world which, while it might be necessary, has become such a feature of the corporate, and particularly listed corporate, world. Anecdotal evidence suggests that in many cases the risk and compliance role of a director of a listed company, particularly in financial services or any other heavily regulated sector, outweighs time and focus on strategy and direction. Given the CBA's current woes this may seem implausible, but that doesn't allow for incompetence.

For those readers in private financial services businesses we suspect the emphasis on the compliance and reporting requirements are also an equal or increasing burden, with few technological solutions to the problem. In fact advancing technology may simply be increasing the compliance burden.

Meanwhile, the US FED raised rates 0.25% as expected, even if the vote was not unanimous, and with expectations of three more to come in 2018, the markets were unsurprised.   Well that depends if it was the equity market - happy that the economic signals continue to gather momentum without undue inflation - or the bond market, unhappy as yields rise.  The question is when does the switch in asset allocation out of equities start?  Probably not for a while yet, but the tipping point will come at some point.

Labour markets and employment are strong both at home and the USA, but not so wages growth. That tipping point will no doubt change when labour markets go from being strong to tight, a scenario which will be delayed somewhat by advancing technology, but which the corporate world will not be looking forward to.

ARCO ABSOLUTE TRUST (formerly Optimal Australia Absolute Trust)

AFM have released the most recently updated Fund Review on the ARCO Absolute Trust.

We would like to highlight the following aspects of the Fund;

• ARCO Investment Management is a specialist Australian equity investment manager and the Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. 

• The investment team comprising George Colman, Peter Whiting, and Stephen Nicholls bring 100 years combined experience in equity markets.

• The Fund has an annualised return since inception of +8.41%. The Fund's approach to risk is shown by the Sharpe ratio of 1.39 (Index 0.30), Sortino ratio of 2.95 (Index 0.32), both of which are well above the ASX 200 Accumulation Index and has recorded over 79% positive months.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - November 2017 (pdf format)

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.

• The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large large-caps from the ASX/S&P100 Index, with over fourteen-year track record and annualised returns of 16.38% p.a.

• The consistent returns across the investment history indicate the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market. The Fund's Sharpe Ratio and Sortino Ratio are 0.99 and 1.63 respectively.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - November 2017 (pdf format)

Some say that Australian's shut up shop in January and go to the beach, thereby making it an 11 working month year. From Hedge Clipping's experience that's a gross understatement. Many in the financial services sector, particularly when in Melbourne, advise that if you don't get deals in place by Cup Day on the second Tuesday in November, then getting any serious traction and attention becomes increasingly difficult. And even if that's a Melbourne issue, by the beginning of December many Australians go in to "count down mode" leading up to Christmas.

Without wishing to admit to being a member of the 10 working month a year fraternity, there's certainly truth in the facts. From December 1 onwards driving on city roads becomes progressively easier, politicians head for overseas taxpayer funded "research trips", and those left at the coal face endeavour to clear up all the outstanding administrivia we have been putting off for the past few months.

Not that it apparently affects the stock market, which according to an article  written by Wilson Asset Management's Chris Stott, argues that as the new year approaches, the market tends to perform particularly well as the Santa Claus effect, first documented in 1972, takes hold. Stott's research shows that since 1950, December has been the best performing month for the market, with the All Ordinaries index rising 74 per cent of the time. Over the period, the index has delivered average gains of 2.1 per cent over the month.

Bell Potter's Richard "Coppo" Coppleson describes the market hitting a "sweet spot" from mid-December through to early January. His research shows that during this period, Australian shares have posted gains in 31 out of the past 37 years to deliver an average return of 3 per cent. In the 31 "up" years since 1980, the market has increased an average of 4.2 per cent. Further, a remarkable 25 per cent of the time the market has surged by 6 per cent or more.

Since 1995, the All Ordinaries has fallen just twice during this trading period - once in 2007-08 (down 6.3 per cent) and again in 2010-11 (down 0.7 per cent). Analysis by Andrew McCauley of Veritas Securities finds that the market delivers inordinately high returns in the eight trading days before New Year's Eve, with the All Ordinaries rising a remarkable 83 per cent of the time from 1980 to 2015.

All this is great news for investors, but "why is it so"? Wilson Asset Management's Chris Stott goes on the explain it might be bank dividends:

"As investors make adjustments to their holdings and position their portfolios for the new calendar year they tend to be net buyers of shares as December 31 edges closer. Not to be overlooked is the fact that three of the four big banks all pay dividends in December.

This year, ANZ Banking Group, Westpac Banking Corp and National Australia Bank will pay out a combined $8.2 billion in dividends to shareholders between December 13 and 22. Assuming about 15 per cent of dividends are reinvested through dividend reinvestment plans, collectively investors will still receive almost $7 billion in cash to potentially invest in the sharemarket.

In spite of the additional buying occurring during this period, the absence of many market participants at their desks during the holidays has seen the volume of shares traded on the ASX fall markedly. For example, in recent months the sharemarket has had average daily volumes of about $5.7 billion. In comparison, over the last two weeks of December 2016 and the first week of January this year, average daily volumes dropped by 21 per cent to $4.5 billion.

In Wilson's view, the combined effect of investors' net buying and the market's constricted liquidity helps push share prices higher, creating a Santa rally at the end of the calendar year.

With the festive season upon us, investors may wonder if this year the sharemarket will bring them some cheer. With the outlook for interest rates to be lower for longer, many investors could be more inclined to reinvest their cash dividends into the sharemarket, rather than put them into term deposits with record low returns. Past experience would seem to give reason for optimism with the market outperforming on average over the holiday period."

That's enough from Hedge Clippings for now - there's a (long) Christmas lunch I'm due to go to....