The great QE policy experiment ended overnight, (or at least QE3 ended) with the sky failing to fall in. In fact far from tanking, the market took the well telegraphed end of taper in its stride, with the S&P500 up 0.6%. Whether this was a case of relief that "nothing" happened or not will remain to be seen, but in reality it is hardly likely that the FED will start to tighten interest rates for at least six months.
As far as economic experiments go QE1, 2 and 3, along with the Taper have been pretty extraordinary. Like them or loath them, the US economy, particularly employment, has managed to pick itself up off the floor having been knocked there by a combination of lax (or minimal) regulation, some financial wizardry, and plenty of good old fashioned greed.
Rising interest rates now remain the big test, not only to the economy, but also to the markets. All the economic indicators suggest the US economy will be able to manage the orderly raising of rates reasonably well. Markets may well be a different matter if there's a stampede out of equities, but the question is, where to?
Any increase in rates will see falling bond prices, particularly at the short end. Over time higher bond yields will prove attractive, but coming off such a low base this will certainly take time. Volatility, or at least the fear of it, would appear to be the biggest risk to equity prices while there are so few alternatives other than cash.
Assuming the FED can manage an orderly increase in rates (sufficient to avoid spooking the equity market) then inflation might be the great unknown risk. However with the recent declines in energy prices, and the strengthening US dollar, this would seem unlikely also.
The problem is that risk always appears when least expected, and often from the least expected direction. (Think 9/11).
That still leaves plenty of opportunity for China, Europe, emerging markets and geopolitical factors to play their part.
And on that note, have a happy and relaxing, worry free week-end.
Don't miss out! Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes.
Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.
25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.
Specific results received this last fortnight include the following PERFORMANCE UPDATES:
In a difficult month for equities the Insync Global Titans Fund returned 3.81%, bringing it's 12 month return to 13.86% with volatility of 8.09%.
The KIS Asia Long Short Fund returned -0.08% during September and 8.21% for the prior year with a volatility of 2.73%.
Bennelong Long Short Equity Fund returned -3.59% in September, a weak month for domestic equities (ASX 200 Accum Index -5.38%).
With a volatility of 0.57%, Laminar Credit Opportunities Fund returned 0.84% during September and 9.54% for the prior year (compared with the RBA Cash Rate of 2.50%).
The Cor Capital Fund's diversification was seen in September when the Fund fell 1.03% compared with the ASX 200 Accum Index which fell 5.38%.
CPD points are available for all FUND REVIEWS released this week including:
Bennelong Alpha 200 Fund; Alpha Beta Asian Fund
This week's Now For Something Completely Different... Why didn't the skeleton go to see a scary movie? He didn't have the guts.
Best wishes for a happy halloween and healthy weekend,
Chris
CEO, AUSTRALIAN FUND MONITORS
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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.
