US Federal Reserve chickens out
As expected the US Federal Reserve didn't have the nerve to increase rates when they met earlier this week, once again scared that any shift, however long it has been expected, will either damage a fragile economy, equity markets where valuations have been bloated by QE, or their own reputations. It seems unlikely that they will make the move in November either, given the looming presidential election and not wanting to be seen to be political.
Meanwhile, the Bank of Japan confirmed their negative interest rate stance of -0.1%, while back in Australia the market's expectation seems to be that rates may have fallen as far as they can go. What is certainly true is that with rates where they are the RBA's firepower seems limited.
Strange times indeed. Equally as pointed out by Hugh Dive from Aurora Funds Management, over the past week in the financial press there have been articles advocating a zero weighting to banks, and another one has taken the opposite view and saying that Australian bank shares are historically cheap, and investors should be buying with their ears pinned back. With 25% of the ASX 200 represented by six high-yielding bank stocks and investors' relentless search for yield, there is likely to be ongoing support. It will be a brave (and unlikely) retail investor that exits the sector entirely.
However as and when interest rates do start to rise, it is likely that the shift will start to occur. While the market has taken the gloss off bank shares this year, alternative income streams, or concerns about the bank's level of exposure to an overpriced property market, is likely to cause a serious rethink in valuations.
Back to politics for a second - next week sees the great US Presidential debate theatre in action. The big question seems to be whether Donald Trump will try to outdo even himself with further wild rhetoric, or pull his head in. Seeing as he has got this far with the former it seems unlikely he will change his tune, but it will certainly make for an entertaining, if somewhat alarming, TV fodder.
Pengana Absolute Return Asia Pacific Fund returned 1.63% in August, compared to MSCI ACWI Asia Pacific markets which returned +0.91%.
APN AREIT Fund returned -3.29% in August. The long term performance since inception remains strong with annual returns of 18.62% p.a.
NWQ Fiduciary Fund fell 1.54% in August and has returned +12.72% over the last 24-months.
Affluence Investment Fund rose 1.06% in August, outperforming the ASX 200 Accumulation Index which returned -1.55%, by 2.61%.
King Tide NZ/Australian Long/Short Equity Fund returned -2.10% in August. Over the latest 24-months, the Fund has risen 20.31%.
FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; APN Asian REIT Fund; Bennelong Twenty20 Australian Equities Fund;
And on that note, have a great weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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