Last week "Hedge Clippings" noted that while negative, or historically low interest rates around the world caused by QE in the US and European and Japanese Central Bank Intervention (CBI) is working up to a point, it is still a great experiment that we had to have to avoid a complete meltdown during and post the GFC. As such, the end outcome has yet to be determined.
China's economy is still a question mark, although is likely to be a major beneficiary of the lower energy prices - if and while they last. The crackdown on the margin lending which has helped to push the Shanghai market so strongly over the past six months will however be interesting.
Europe won't respond to CBI the way the US did to QE simply because there are 28 different economies and nationalities at work. It is not universal. The world is facing deflation and 0% or negative interest rates, and as we indicated in last week's Hedge Clippings there's likely to be tears before bedtime.
The question is when? Investors will continue to chase whatever yield they can find, and bank deposits aren't where they will find attractive returns for a while. Hence equity markets, and particularly the six great dividend payers in Australia (the big four banks, Wesfarmers and Telstra) although expensive on most counts, will remain well supported, as evidenced by the Commonwealth Bank hitting $90 today.
So there's a significant anomaly: In spite of the risk of concentration in just a handful of stocks, and in spite of the risk of buying assets which on any normal valuation are significantly overpriced, investors are still happily allocating to equities and if the RBA cuts rates again next Tuesday as many expect, are likely to continue to do so. Meanwhile more and more commentators and fund managers are warning of the risks.
They are doing so on the assumption there won't be any shocks to the system, be it an economic or political black swan event, which of course can't be ruled out. For example, oil prices halving in 6 months out of the blue is likely to cause some serious pain in some sectors of the US (shale oil) market and in Russia, even if we can now afford to fill the car's petrol tank.
So what to do? A sensible investor (if they believe the nervous nellies) might buy some insurance in the form of long dated out of the money index put options. Or just continue to dance until the music stops, and hope for the best.
But hope is generally not considered to be the best strategy.
Specific results received this week include the following PERFORMANCE UPDATES:
Paragon Fund returned -0.50% (ASX 200 Accum 2.06%) during December with annual returns at 16.09% (Index 5.61%) with a volatility 15.16% (Index 10.95%).
The Pengana Absolute Return Asia Pacific Fund returned 0.74% in December and 6.20% for the year with a volatility of 2.79% and a Sharpe ratio of 1.29.
Auscap Long Short Australian Equities Fund recorded a return of 0.44% in December with the annual return 23.17% and a volatility of 7.46%.
The Avenir Capital Value Fund returned -4.42% during December 2014 with annual performance of 15.38% and volatility of 11.11% since inception.
FUND REVIEWS released this week, all with the potential for earning CPD points:
Optimal Australia Absolute Trust; Alpha Beta Asian Fund; Aurora Fortitude Absolute Return Fund; Bennelong Long Short Equity Fund; Totus Alpha Fund; Insync Global Titans Fund;
We have limited places available for our Deloitte "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. If you would like to attend, please register your interest here.
18 February 2015 in Sydney - Efficiency in a Regulated World
25-27 March 2015 - Digital Marketing for Banking and Financial Services Summit
Finally, and now for something completely different - something that money can't buy (beautiful clip if you ignore the last 10 seconds).
Kind regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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