Bernanke can't seem to decide which pedal to push
Ben Bernanke's comments overnight certainly set the US market alight, no doubt much to the delight of investors around the globe. However they seem at odds with the comments he made just a few weeks ago that tapering of QE could be expected in the not too distant future.
His previous comments put the skids under the equity market, pushed up bond yields along with the US dollar, and as a result further weakened the $A. However the tapering scenario didn't seem too illogical even if somehow it took many market participants by surprise, which in itself was surprising given most must recognise that QE can't continue forever.
The difficulty for investors of course is to know whether Ben Bernanke's next remarks are going to have the equivalent effect of him hitting the brakes, or the gas. I'm sure he's not doing this intentionally, and after all he should be the person with all the data at his fingertips, but having started the difficult process of weaning markets off QE, putting them back on again would seem to be not only sending mixed messages, but also delaying the inevitable.
The situation in both Europe and China is not helping. Parts of Southern Europe remain what is best termed economically as basket cases, with politics (or politicians being re-elected) having as much influence on economies and markets as anything else. Meanwhile in China there seems ongoing confirmation that the glory days are over, even if hopefully growth will continue at more sustainable levels.
All this highlights the rising market volatility, as noted by George Colman from Optimal Funds Management in his most recent report to investors, when he pointed out that the typical ASX daily trading range since 2000 has been around 0.9%. More recently daily trading ranges of plus or minus double that figure have become almost frequent, making investment decisions difficult to say the least.
In spite of this, albeit with just under 50% of fund returns for June to hand, returns have been significantly better than the market, even if the average return of equity based funds has been negative at 0.90%. To date, 72% of returns have outperformed the ASX 200 Accumulation Index (which fell 2.32%), and 29% provided positive returns. A full breakdown can be found here.
Some more specific results received this week include the following Performance and News Updates:
The Optimal Australia Absolute Trust returned -0.18% in June as the ASX200 Accumulation Index suffered its second successive monthly loss as investors continued to sell AUD risk assets. The Manager particularly noted the increasing equity market volatility, with recent daily trading ranges of over 2% significantly higher than the typical range since 2000 of around 0.9%, and the distortion on valuations created by QE policies which they believe may persist for years.
Insync Global Titans Fund returned 0.91% in June as bond yields rose on the prospect of a tapering of QE. The Fund's return was assisted by holdings in companies driven by consumer spending such as BSkyB, Macdonald's, Reckitt Benckiser, Nestle and Roche.
The Bennelong Kardinia Absolute Return Fund returned -0.46% during June (for only it's second negative month in the past 2 years) with a net equity exposure at month end of 35.5% including derivatives (46.7% long and 11.3% short).
Morphic Global Opportunities Fund returned 1.84% during June. The Fund's top stock contributors this month came from individual stocks in a variety of countries, plus a few successful macro-economic tilts based on the Manager's belief that US government bond rates would rise, and the Australian dollar would continue to fall.
And finally, for something completely different, a clever shadow theatre act brings a tear to the eye.
On that note, I hope you have a happy and healthy weekend!
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
