What a mess - but we'd better just get used to it!
Political turmoil remains the order of the day, and as a result markets are likely to remain in limbo (at best). Of course this is not unique to Australia, given that the formerly Great Britain is undergoing massive turmoil with unknown outcomes. Meanwhile in the US could it really be possible that there will be a President Trump?
That thought was unthinkable just six months ago, but then so was Brexit, as was a tied vote in last week's Australian election. It is worth noting that while it looks as if the Liberals will scrape home with a semi workable majority, as of 2:20 this afternoon the Australian Electoral Commission's website showed that on a two-party preferred basis both the Labour and Liberal/National Coalition parties were both in a virtual dead heat at 50%, with just 8,288 votes separating them out of over 10.4 million counted.
As a result Bill Shorten is being hailed a hero by the faithful, concealing the fact that the Labour Party received its second lowest primary vote in almost 100 years. Meanwhile Malcolm Turnbull is having to face down his critics, who are conveniently ignoring the fact that Tony Abbott's primary vote fell by over 9%, indicating that had he remained PM he would have led the Liberals over the proverbial cliff which was Turnbull's justification for replacing him in the first place.
As such at least half population will be disappointed whichever way the result goes, but more importantly, assuming that Turnbull remains Prime Minister, will he be allowed to govern the way most voters wanted him to late last year when he took over? Alternatively, sadly, and most likely, he will be forced to compromise by the right-wing of his own party, and/or the minor parties on the cross benches.
So given Hedge Clippings is supposed to be an review on Absolute Return and hedge funds, why the political analysis? Quite simply because Standard and Poors have quickly announced that Australia is on credit watch, and that if the budget is not fixed we're likely to lose our coveted Triple-A rating.
The unfortunate thing is that there is simply no electoral will to fix the budget, and it seems no political will (or ability) to lead the electorate down the path needed to do so. On the expenditure side it seems too many people are hooked on government benefits, handouts, and concessions of one sort or another, on the income side no one wants to pay more tax or give up generous tax concessions on superannuation or negative gearing, while serious tax reform such as the GST and income shifting offshore are clearly in the too hard basket.
It is therefore difficult to imagine anything that is going to kick the market out of its current sideways trend, at least not in an upward direction. There is still the threat of a Royal Commission into the banking industry, while in the UK six retail UK property funds with $18 billion worth of assets have been frozen due to liquidity problems. Or should that be illiquidity problems?
Investors should therefore be careful. There may be a collective sigh of relief from the business sector that the Liberals will likely scrape home for the next three (difficult) years, but as the numbers above show a change of government is easily on the cards next time around.
Volatility in markets will continue to occur to match the lack of a clear political outcome both here and overseas. And in such markets investors need a hedge against volatility.
Meme Australian Share Fund rose 0.61% in June, outperforming the ASX 200 Accumulation Index which returned -2.45%, by 3.06%.
Bennelong Long Short Equity Fund returned -1.04% in June and 24.05% over the last 12 months.
The Paragon Fund rose 6.30% after fees for the month of June, to take annualised return since inception to 24.06% p.a.
FUND REVIEWS released this week: Insync Global Titans Fund; Supervised Global Income Fund;
And on that note, have a great weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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