16 Jan 2015 - Hedge Clippings

Here we go again...

Welcome back to Friday afternoons, and Hedge Clippings. Even if you're still on holiday, languishing on the beach, or quietly sipping a glass of something cool and refreshing, you'll be pleased to know that some of us at least are back at the grindstone for another year.

So to kick off the year ahead let's look at the performance of funds and strategies over the past 12 months, and also preview some of the major themes or issues facing markets in 2015.

We need to be a bit careful on some of the numbers below but with just over 59% of December's results in to date, there's a pretty strong trend:

At the individual fund level 12 month performances ranged from -22% through to +54%. The ASX200 itself only rose 1.1% for the 12 months to 31 December, so dividends etc. added 4.5% to investors' returns, and that probably explained the strength of the yield chasing that was going on with interest rates so low - particularly in the banks and stocks such as Telstra.

Overall from an anecdotal perspective most managers found 2015 pretty tough - in fact a number have confided that they found it one of the hardest years they'd experienced. In particular low equity market volatility, although with some notable spikes at specific times, along with the punishment handed out to companies that disappointed analysts and investors, made it a difficult year.

Certainly the best performing funds were either the stock pickers (provided they got their picks right) or those funds investing overseas which had the double benefit of stronger offshore markets, and the A$ as it finally declined in the second half of the year.

Strategy wise there was the usual dispersion of returns, but not as extreme as in previous years, with only Currency (-1.04%) and Commodities/CTA's (-4.29%) posting negative numbers:

Of course the big themes for the year were the slump in commodity prices, record low interest rates, and towards the end of the year the oil price heading towards $50 per barrel.

Overseas the US saw off QE and seems to be prepared for rates to rise, Europe remains a dog's breakfast, and China remains a question mark.

So the big themes - or questions - for 2015?

1. Will the US equity markets actually handle a rate rise without too much of a rush for the exit sign? Valuations are pretty rich, so volatility could rise if the transition isn't smooth.
2. How will the oil price affect global economies - including Russia?
3. Can Europe pull itself out of the doldrums, and will Greece - or perhaps Portugal - exit the EU and create volatility.
4. Will RBA Governor Glen Stevens get his way, and will the A$ continue towards his $0.75c target, possibly driven by a further rate cut?
5. Locally 2014 was a year of missed opportunities and fumbles for the government, and although an expanded and increased GST is being discussed, it's unlikely for the time being. So what's in store for the budget and politics in general?

All these questions and more will be covered at AFM and Deloitte's "Looking Forward, Looking Back" lunchtime seminar on Thursday 12 February in Sydney. We'll have four of the best and brightest fund managers on hand, including Simon Shields, George Colman, John Corr and Monik Kotetcha to give you the benefit of their opinion, so if you would like to attend, please register your interest here.

Specific results received this week include the following PERFORMANCE UPDATES:

Bennelong Kardinia Absolute Return Fund returned 1.53% during December, bringing 2014 performance to 5.77% (ASX 200 Acc 5.61%) with volatility at 4.17% (Index 10.95%).

The Morphic Global Opportunities Fund 2.62% in December bringing the annual return to 13.99% (Global Equity Index 12.57%) with a volatility of 7.75%.

Bennelong Alpha 200 Fund returned -0.13% during December, bringing returns to 2.26% over 2014 (ASX Accum Index 5.61%).

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.