Look out for the unknown unknowns...
I don't know if it is just me, boredom with the election campaign both here and in the US, or a case of going grey, getting old (and grumpy) but I get the feeling that something significant is going to shake the world's major economies and their current low growth, low inflation trends.
In the US the Fed kept things on hold once again this week. They have been trying to raise rates for at least a year, but the combination of the economy and the markets won't let them do it. They also have to worry about the potential election of President Trump… 12 months ago that was considered unlikely and therefore, a known known. Now its a known unknown.
Europe is on hold waiting to see if Brexit occurs, and if it does what impact it will have on both economies and markets, and whether it will lead to other European countries following suit. Even six months ago Brexit was hardly mentioned - now it's a known unknown.
Locally we're stuck waiting for the outcome of the July 2 election result, which before Christmas was considered a known known. Now, with the whole nation (excepting the politicians themselves) becoming immune to the daily dose of political campaigning it looks like a known unknown. Even after the election is over, whoever is elected will have to work out how to pay for their promises and kick-start a post-mining boom economy. Another known unknown.
Whilst not always a fan of Donald Rumsfeld, Hedge Clippings would agree that it is the "unknown unknowns - the ones we don't know we don't know…. that tend to be the difficult ones."
The bottom line is that whenever investors get used to or expect something to happen (or in this case not to happen), there is the potential for the "unknown unknowns" to arrive unexpectedly and (normally) negatively affect markets.
Of course, as it's unknown, it would be unwise for me to try and predict what such an event might be, and maybe I am being excessively cautious.
So while from week to week we look at some of the best performing funds, there is also sound reasoning for also looking at the most defensive. Those funds that in spite of the worst that markets throw at them, protect investors' capital.
Overall the share markets rose in May. The Australian share market (S&P/ASX 200 Index) was up +2.4% for the month. The US market (S&P 500 Index) returned +1.5%, Europe (MSCI Europe Index) gained +1.5%, Japan rose +3.4%, while the rest of Asia was slightly weaker (MSCI Asia ex-Japan -1.6%).
Bennelong Kardinia Absolute Return Fund rose 1.60%, to take annualised return since inception to 11.86% p.a.
Pengana Absolute Return Asia Pacific Fund returned -0.56%, for an annualised return of 9.75%.
Totus Alpha Fund rose 9.36%, to take annualised returns since inception to 25.89% with standard deviation of 15.91%.
Pengana Global Small Companies Fund generated a positive return of 5.11% in May.
APN Asian REIT Fund returned +0.90%, outperforming the Bloomberg Asia REIT Index which returned 0.64%, by 0.26% and taking annualised returns since inception to 17.09%.
FUND REVIEWS released this week: Meme Australian Share Fund; Jamieson Coote Bonds Active Fund; Optimal Australia Absolute Trust; Bennelong Long Short Equity Fund;
And on that note, have a great weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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