Sell in May and go away? That all depends where you're going.
With just one trading day to go, May has been an interesting month. The sharp contrast between the fall in the ASX200 of -4.33%, and the S&P500's gain of 4.08% is a significant differential of 8.41%.
Although the overall fall on the ASX200 has been significant (although smaller than May 2012 when it fell over 7%) the variance between sectors will also make a big difference to this month's fund and strategy performances.
The contrast will be even more glaring when comparing returns between funds investing in Australia, and those with offshore or global mandates. Partly or un-hedged international funds will benefit from the decline in the A$ of 6.7% during May from US$1.036 to US$0.967 which pushes the return on the S&P500 in $A terms to 11.15%. This brings the potential difference in returns between local and un-hedged US equities to 15.48%.
This raises two points of interest. Firstly the volatility of monthly returns recorded by the ASX over the past 12 months, with moves ranging between +5.37% and -4.43%.
Secondly and looking forward, is the outlook of the ASX and the A$ given the deterioration in sentiment. Most Australian investors, both individual and institutional, have a strong bias to domestic rather than global equities which has worked well until 2008.
However with local interest rates forecast to fall further, the A$ is expected to have further to fall, and the earnings outlook for the domestic market is deteriorating on the back of contraction in the mining sector. Meanwhile the medium outlook for consumer related companies has deteriorated, even if the yield argument may keep the (expensive) banks, Telco's and REITS supported.
While offshore markets in each geography have their own problems they may be further into a recovery at a time that Australia is moving into a slower growth situation. In this environment, investors may need to consider their asset and strategy allocation as the long only and index funds which have performed so well over the past year make way for more risk averse investments, or include the option of funds with offshore exposure.
Performance and News Updates on www.fundmonitors.com this week:
The BlackRock Multi Opportunity Fund had a sound April, returning 1.69% and 10.86% over the last 12 months. Their latest Fund Review is available here.
SGH Ice Fund, a small cap manager, delivered 2.57% during April and 28.53% over the preceding 12 months.
Mathews Capital Velocity Fund redemptions have been frozen for 12 months. Perpetual Trust Services, the responsible entity of the Velocity Fund has advised investors that the fund has become "non- liquid" and that redemptions will be suspended for up to nine months.
And finally, for something completely different, a funny look at insurance company decision making policy.
On that note, I hope you have a happy and healthy weekend!
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
