This being the last edition of Hedge Clippings prior to the release of the new Treasurer Joe Hockey's first budget next Tuesday, it stands to reason that we may as well join the throng in both guessing what it might contain, and suggesting what it should, or could.
It goes without saying of course that whatever un-pleasantries the budget does contain will not be the fault of the Treasurer, but that of his predecessor from the opposite side of politics. And being his and this government's first budget it also goes without saying that they'll try to get the worst news out of the way as early as possible.
There seems little doubt that the government is intent on making some significant changes on both the income and expenditure side of the ledger, and the convenient timing of the release of the Commission of Audit Report containing 86 significant and in many cases electorally untenable proposals, will enable them to do so if they wish. However there is also a feeling that much of the measures mooted over the past couple of weeks may well just be a case of softening us up so that the news on the night elicits a collective sigh of relief.
There is also little doubt that both the revenue and expenditure lines, or the concepts and logic behind them, are in serious need of a shakeup. Welfare and government assistance should be aimed at the genuinely needy, not the greedy. Unfortunately over the past 20 to 30 years Australia has developed a welfare habit which it is struggling to break. At the same time demographic changes over the next 20 to 30 years will seriously increase government expenditure, particularly in the health and aged care sectors.
One political sacred cow which may, or possibly should, be considered for the chopping block is negative gearing on residential property, particularly given the housing affordability issues currently facing first-time buyers. The Australian superannuation system would also appear to be in the spotlight. While terrific conceptually, it has evolved over the past 20 years to be unwieldy, overly complicated, and as David Murray indicated yesterday in some preliminary comments on his Financial Services Inquiry, is excessively focused on the 40+ year accumulation phase, and not sufficiently on the subsequent 20 to 30+ year retirement phase.
On the income side the complexity of the taxation system, including superannuation, is extraordinary, and only increasing. One would have thought that increasing the GST would be the logical solution, given that Australia's 10% consumption tax rate is way below, and in some cases less than half the prevailing rate in many other developed economies. For some reason that appears not to be on the agenda.
All this is well and good, and I fear I'm likely to be disappointed on Tuesday. The big risk to the economy is not so much that the budget fails to fix the deficit, but that the increased taxation and expenditure cuts are so severe they damage the consumer confidence which is the lifeblood of any economy.
And the big challenge for the Prime Minister and the government is how to convince the electorate that a great big new levy is not in fact a great big new tax.
Specific PERFORMANCE RESULTS received this week include the following:
The Intelligent Investor Value Fund recorded a strong 24.63% over the previous twelve months as compared to the ASX 200 Accum return of 13.46%.
KIS Asia Long Short Fund returned 0.70% during March with an annualised volatility of 2.67% (Index 11.03%).
The Laminar Credit Opportunities Fund delivered 0.62% during March and 11.52% for the year, with a low volatility of 2.72%.
Pengana Asia Special Events (Onshore) Fund returned 9.27% for the year with an annualised volatility of 3.22% and Sharpe ratio of 1.98.
The Cor Capital Fund returned -1.34% during March and 2.24% for the prior 12 months.
FUND REVIEWS updated this week included:
Bennelong Kardinia Absolute Return Fund - characterised by steady returns and very low risk. The Fund returned 0.87% during March and 13.57% p.a since inception (May 2006).
The Optimal Australia Absolute Trust - very low risk profile with an annualised standard deviation of 3.53% (Index 14.95%) and a Sharpe Ratio since inception of 1.73.
19-20 May in Sydney, IBR Conferences presents the Unit Pricing Forum. This is a 2 days forum exploring Unit Pricing operational challenges for 2014 & beyond. Topics include new APRA reporting requirements & implementation; impacts on unit pricing reporting and more.
Wednesday 21 May in Sydney: The Hedge Fund Association, in conjunction with Pricewaterhouse Coopers, is pleased to present an update on key regulatory matters currently affecting the alternative investment industry. A panel of Pricewaterhouse Coopers senior executives will provide a detailed overview of topics, as well as allowing for questions and commentary from attendees.
28-30 May 2014 in Sydney: IBR Conferences presents the Asset Allocation Conference. This event has been designed to both update and educate investors by taking an in-depth look at these more adaptive asset allocation strategies and practices and where the best opportunities for high return lay in the current climate.
If you would like your Event listed in our calendar, please contact us.
And now for something completely different this week, a fascinating look at the Honey Badger and the things that this one will do to escape his enclosure. Having watched it, we are wondering why they don't just let him go.
Best wishes,
Chris
CEO, AUSTRALIAN FUND MONITORS
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This weekend one of our staff members is participating in the Sutherland Shire 24 hour Relay for Life and will be walking a marathon to raise money for her team (Nety Girls) and in memory of family members who have died from cancer. Click here to make a donation or watch a short video to see what all the fuss is about.
1 in 2 Australians will be diagnosed with cancer before the age of 85. All money raised through Relay For Life makes a difference in helping fund Cancer Council's critical research, prevention, education and support services. Relay For Life is a fun, outdoor overnight fundraising event that brings communities together to celebrate and remember the lives of those who have battled cancer. Teams take turns to walk or run around a track whilst enjoying entertainment, activities and heartfelt ceremonies.
