18 Jan 2019 - Hedge Clippings - 18 January, 2019

Happy New Year 2019, and welcome back from Hedge Clippings after a most welcome, albeit weight gaining, three week break.

Maybe it's advancing years, maybe the combined effects of the festive season (or a combination of the two), or possibly the avalanche of information which builds up while one's away, but it was difficult to know quite where to start for the first edition of Hedge Clippings of the year. Certainly, there are a larger than usual number of fund performance updates to follow these comments, so a brief word on performance for 2018.

It will go down as a year of two parts - the first three quarters, most of which were positive, followed by a horror final quarter as a combination of factors finally cracked the advance of the bull market which commenced post GFC in 2009. The decline in the property market was inevitable but cemented by the revelations and implications of the Hayne Royal Commission.  

In spite of reports in the media from some quarters, as far as fund performances are concerned there were some outstanding results given the backdrop of equity markets, both locally and overseas. At this stage it is too early to accurately define year-end results as only 35% of funds' December returns are in. However, based on what we know to date 30% of December results were positive, with around 40% of funds providing a positive result for the year, and 67% outperforming the ASX200 Accumulation Index.

Experience tells me that these numbers might slip somewhat once all 430 funds now in the www.fundmonitors.com database have lodged returns, but those figures are far from the wipe out headlines in sections of the media.

Elsewhere much of the information avalanche (maybe some we will claim the term "infolanche" if it hasn't been taken elsewhere) concerned more of the same, consisting of mainly negative news of geo-political issues which seem to be dominating print and screen.  Without dissecting each at this time of the week, let's just list the major ones which will make markets - and managing money - difficult over the next 12 months (at least!):
 

1. Brexit's causing uncertainty. What a shambles, impacting not only on the UK but also the EU economy. Whatever the outcome a large proportion of the population will be deeply divided and dissatisfied.  In fact, it is quite possible that the final outcome will please no-one.
2. US Government shutdown uncertainty (short term), and depending on how long it drags on the more serious it becomes and, we suspect, the more entrenched the opposing sides will become.
3. US/China trade negotiation uncertainty, although more likely than not to be resolved eventually, hopefully sooner than later. However, there's a strong risk that additional damage is being done to an already wavering growth rate in China.
4. Australian Election outcome, which seems pretty certain, and not a positive from an investment perspective - franking credits, negative gearing, Bill Shorten's class warfare rhetoric etc.
5. Australian property: Continuing negativity thanks to economic and electoral uncertainty, plus one of the highest levels of household debt/property price ratios in the developed world.
6. The Hayne Royal Commission findings due on February 1 are unlikely to help consumer and investor sentiment, increase focus on the financial sector and therefore further potential damage to property, or management's bonuses!
7. Consumer confidence (or lack thereof) based on all of the above, but in particular items 4, 5 & 6.

Finally, and there's certainly insufficient time or space to do it justice here, the Productivity Commission's report into at least parts of the Superannuation system. We welcome the report's focus on increased transparency and on investors' and workers' retirement outcomes being paramount, but there's a need for a total review of super, including its complexity and the confusion that results, much of which we believe is responsible for the lack of engagement by the average worker. 

There's a long way to go before this debate is over, but the squealing from various vested interests, both industry, for profit and political, leads one to think the Productivity Commission is on the right track!