27 Feb 2016 - Hedge Clippings

We're searching for a confident economist, but can't find one!

This week Hedge Clippings seemed to be in the company of economists and other experts more than normal. It's not that we have a habit of avoiding them, even if we wanted to, it was just the way the week unfolded. And having paid attention to what they were variously either saying and putting up on the screen, you'd have to say it was a pretty sobering experience, particularly in a week when the once big Australian, BHP, cut their dividend by 75%.

Now trying to distil close to four hours of economic opinion and expertise into a few paragraphs is not the easiest thing to do - so much so that I'm just going to jot a few dot points down and hope they're the right ones. Here goes, and no doubt I will be reminded either that I got it wrong, or missed other more pertinent points:

• Demographics across the globe are changing, and causing some major issues. More people are earning, but not much, and therefore not spending or paying much tax, and more people are getting older and relying on welfare of one sort or another.
• China is in serious transition from their infrastructure boom of the past decade or so, to a consumer and consumption and service based economy. Transitional economies (Australia's included) are always difficult.
• Interest rates are at all time lows, and either negligible or negative. This leaves central banks with no room to move, and no levers left to pull.
• Over supply and inflation. As one who grew up, or at least experienced the '70's, '80's and '90's, it is almost unthinkable that rates would be close to zero, and deflation is the problem, rather than inflation.
• Profit share has overcome labour - and there's signs of political pushback as evidenced by Donald Trump's appeal in the US.

Amongst all this returns of double digits from traditional portfolios are going to be hard to find. Mid-single figures possibly, but that's not attractive if it comes with anything like equity volatility. Choosing the correct, and diversification of, asset class is going to be vital.

And in case you think we're not grateful for their views, we were, and are. Thanks to Charlie Jamieson of JCB Bonds, Saul Eslake, Mark Burgess (ex Future Fund), Daniel Blake of Morgan Stanley, Ben Silluzio of QATO Capital, and Deloitte for their hospitality.

Performance updates and reviews received this over the past couple of weeks included the following PERFORMANCE UPDATES:

For January, the Alexander Credit Opportunities Fund rose 0.43%, to bring 12 month performance to +7.08%.

The QATO Capital Market Neutral Long/Short Fund returned a solid +4.90% versus the S&P/ASX-100's fall of -5.48%; an outperformance of +10.38%.

Pengana Absolute Return Asia Pacific Fund finished -2.0% for the month, compared to the HFR Event Driven Index which closed -3.8%. Asia Pacific markets sold off sharply -8.0%, with volatility measured by VIX hitting a high of 30.

Totus Alpha Fund rose 0.67% for the month of January, compared to the ASX 200 Accumulation Index that fell 5.48%, an outperformance of 6.15%.

The NWQ Fiduciary Fund returned -1.62% for the month of January and has returned +14.06% over the last 12 months.

Signature Quantitative Fund returned -0.6% for the month of January, compared to the S&P/ASX 200 Accumulation Index's return of -5.5%, an outperformance of 6.08%.

APN AREIT Fund rose 0.55% for the month of January to bring annualised return since inception to 17.60% p.a.

Supervised High Yield Fund decreased by 0.51% for the month of January, to bring annualised performance since inception to 9.47% p.a.

FUND REVIEWS released this week: Meme Australian Share Fund; APN Asian REIT Fund; Morphic Global Opportunities Fund; Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust; QATO Capital Market Neutral Long/Short Fund; Pengana Absolute Return Asia Pacific Fund; Totus Alpha Fund 

And on that sobering note, have a great week-end.

Regards,

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.