27 Mar 2020 - Hedge Clippings | 27 March 2020

Looking at fund performances as we do at AFM is always a case of looking at things through the rear-view mirror. As such, while we receive intra-month data from some managers, the reality is that firm data is only available for many funds, if not most, on a monthly basis. So, when markets are moving as rapidly as they are now, February's performance data, while indicative, is almost ancient history. It does, however, give an indication of what's to come.

In February the ASX200 Absolute Return Index returned -7.69%. Absolute return funds fell 4% - around half that amount. Market Neutral funds fell just 2.22%. However, averages can be misleading - returns across all 400+ funds ranged from -32% to +21%, with 78% outperforming the ASX and 16% providing positive returns.

March will be another matter. What is apparent is that many funds and strategies which might have been underperforming in the bull market of the past few years have been providing investors with attractive risk profiles. This week we sat down (remotely of course via Zoom, so please excuse the "studio" set up) with Kristiaan Rehder from the Bennelong Kardinia Absolute Return Fund to continue our series on "Defensive Funds in a Disorderly World". You can see the interview (approx. six minutes) here.

Meanwhile, regular readers of Hedge Clippings will know that we have great faith in the UK based Longview Economics and their insightful and accurate data - not only on economic matters. Longview recently started issuing a daily update of COVID-19 statistics comparing infection rates, deaths, tests performed, infections etc.

If you look at the Longview data in the table below, Australia's numbers per capita compare favourably (albeit that they're 24 hours out of date) and, as per the PM's claims this afternoon, show that we're in a better position better than many countries overseas.

For the full Longview report please click here.

China's numbers - if you believe them - makes it look as if they're on top of it. However, having an authoritarian system that enables them to weld up the doors of apartment blocks to prevent people's movements possibly makes that easier.

Currently (based on Longview's data, so maybe 24 hours out of date), we're testing 7,018 people per million. In the US, the number is only 1,116. Our infection rate of those tested is 1%. In the US it's 18% with 942 deaths. Maybe they're only testing really sick people in the US, but in Italy the numbers are:

Tested: 5,386 per million

Percentage of those tested infected: 23%

Deaths: 7,503

As for America, while they can throw billions (trillions?) of dollars at the problem, they can't - or Trump won't - be welding up doors to apartment blocks. Meanwhile the long-term damage to the core economy - business and personal - is and will be massive.

When we mentioned to Longview's Chris Watling that our numbers (relatively speaking) were encouraging, his sage warning was that if we follow overseas trends, they'll get worse from here. How much worse remains to be seen, as the challenge for all countries has been constantly chasing the problem rather than getting ahead of it.

And so, to markets:

In 1987 the ASX fell 50%. In 2008 it fell by 54%. 2020 is much more serious as it affects every sector (perhaps excluding medical) massively. Qantas laid off 80%, Virgin - 90%. Retail will have to, or has already, closed. Even if the govt. is playing catch up.

So, the economy in Australia has, depending on one's view, stopped, or is stopping, or will stop dead in the water. As much as the government supports businesses and households, a six-month lockdown as envisaged can only be reflected in company earnings which are tied to equity pricings.