Hedge Clippings | Friday, 12 November 2021

Inflation:

If you haven't noticed, there's a major debate underway about inflation. The debate is not about inflation per se, as it is pretty clear inflation is, after a long period of decline or dormancy, rebounding. Figures out of the US this week showed consumer prices jumping 6.2% in October, the biggest jump in 30 years, which will spill over to the world, and to Australia as well.

Australia of course has its own inflationary pressures, with supply chain issues thanks to COVID, particularly in the building industry, and higher petrol prices. In addition, in certain sectors labour costs are on the rise, as the shortage of foreign workers begins to hit home, in spite of an increase in unemployment in October to a six month high of 5.2%.

So inflation is here. The debate is firstly around how long it is going to last? The RBA believes (or hopes) it will be temporary, as the effects of COVID pass through the system, and then subsides such that they won't need to raise interest rates until 2023. Others, particularly the bond market, aren't quite so sure pointing to the US 5 Year Treasury yield which has been rising since September. As a result, borrowing costs for fixed rate mortgages are already on the rise.

Australia is not the only country in the world to have a runaway property market and a large number of overindebted homeowners who will be at serious risk if rates were to (or when they) rise, albeit from current record low levels. However, while even a 1% rise in official rates is going to cause some grief, anything much more than that - say 2% - is likely to have a serious downward effect on the property market, and flow on effect on an economy which is just getting off its COVID induced knees.

Moving on:

On the political side this week it was former PM Paul Keating's turn to weigh into the ex PM's ring - presumably upset that Malcolm Turnbull had been grabbing all the limelight in his desperate quest for revenge following his rejection by voters. Keating seemed to think that letting China invade and subjugate Taiwan was nothing to do with Australia, and we should keep our noses out of it.

As much as we might like to not get involved if such an event occurred, trying to ignore it won't stop it from happening. And what Keating is presumably going on about is the fact that we now have an alliance with the US and UK, which goes way beyond simply purchasing nuclear powered submarines. Keating's dislike, or disdain, for both the US and UK is well known, as is his attachment to French clocks. Maybe both he and Malcolm could cosy up to President Macron (who Turnbull seems to think is Bonaparte reincarnated) at the same time?

And one final word on Glasgow: From where we were standing, watching or reading, there wasn't much focus on nuclear energy as a partial solution to the very real issue of global warming. It was therefore pleasing to read that Rolls Royce has raised almost $1 billion in government and private equity funding for their "small scale modular nuclear reactor" design. Long term readers of Hedge Clippings might recall we've banged this drum before, but if we're going to have nuclear powered submarines, why not nuclear powered electricity?

The anti-nuclear brigade will quote the safety red-herring - but the technology has moved on since the days of Three Mile Island in 1979, or Chernobyl in 1986, or even Fukushima in 2011. The chart below shows the deaths from energy related accidents over the past 40 years per unit of energy, and nuclear is less than even solar!

For those wanting some light week-end reading on nuclear safety, click here.

News & Insights

Manager Insights Interview | video by Collins St Asset Management

More tortoise, less hare... |  by AIM (Aitken Investment Management)

Revolution in Art | article by Frazis Capital Partners

10k Words - November Edition | article by Equitable Investors

October 2021 Performance News

4D Global Infrastructure Fund

Bennelong Emerging Companies Fund

Collins St Value Fund

Bennelong Australian Equities Fund

Cyan C3G Fund

DS Capital Growth Fund

Airlie Australian Share Fund

Hedge Clippings | Friday, 05 November 2021

There was so much happening this week that Hedge Clippings hardly knows which way to look: Maybe Tuesday's Cup Day (or celebrations thereof) didn't help, and the RBA obviously didn't want to spoil their day either, leaving rates on hold, but with a not so subtle hint, both here and from the US Fed, that this might not last forever.

On the political front, Scomo's tiff with an indignant French President took over the headlines. It seems both are probably playing politics, but not to be outdone Malcolm (dead cat) Turnbull and Kevin Rudd both joined the fray, and had we actually been at war with France, rather than in a commercial negotiation, both would probably be worthy of a court martial for treason.

Phillip Coorey probably summed up both their involvements best in today's AFR:

"Turnbull and Rudd could co-author a book: If Being Prime Minister is So Easy, Why Were We So Bad At It?"

Enough of politics!

We were excited to announce a new website for FundMonitors.com earlier this week. Along with a new logo, including for Hedge Clippings, the entire site has received a makeover, including a new home page which includes a Peer Group Comparison and an updated News section on the home page.

We have also introduced three new fund "views" or narrative reports to add to each fund's existing Fund Profile,
 

1. A one page FACT Sheet, with key information, and cumulative performance and drawdown charts designed to allow every registered user access to key information on every fund on a "Forever Free" basis;
2. A Performance Summary, including a "Quintile" ranking showing each fund's relative performance vs. its peer group across 6 KPI's, and over various time frames;
3. A full Performance Analysis report that includes data, charts, and narrative against both the fund's underlying index and the average of its Peer Group.

Each of these reports will be updated monthly, including the performance narrative.

We're always keen to get feedback from our clients and users - in fact many of the new initiatives we have introduced came from their suggestions or requests. For instance, the new Narrative Reports resulted from users' feedback that a whole page of numbers and statistics could be overwhelming. The result? New reports with a combination of data and charts, and a narrative description of the fund's key performance indicators.

Please check out FundMonitors.com and let us know what you think.

Many users of the FundMonitors.com website are investors seeking information to help them compare, research, and invest in managed funds. However, many users also require the site's tools, such as Watch Lists, Portfolios, and Custom Statistics. To accommodate users' different requirements, we have added a range of subscriber levels, including "Forever Free" which provides access to the home page, news, videos, and a FACT Sheet for every fund.

We look forward to announcing further new initiatives we have in the pipeline. Meanwhile, if you have any questions about any of the above, please let me know.

News & Insights

Manager Insights Interview | video by Longlead Capital Partners

Distinctively different and driven to perform: Unlocking the opportunity of 'special situations' | Webinar by Collins St Asset Management

Stock Story: Seven Group | article by Airlie Funds Management

Inching Towards Normal But Not Without Risks | article by Delft Partners

Market volatility does not change key drivers of the share market | article by Prime Value Asset Management

October 2021 Performance News

AIM Global High Conviction Fund

Hedge Clippings | Friday, 29 October 2021

Risk Warnings - protecting the investor or the fund issuer?

Anyone who has ever invested in a managed fund should be well aware of the "Risks" section in the offer document, with probably the most well known one relating to past performance. With due respect to our legal friends, and if it comes to that, ASIC as the regulator, it strikes Hedge Clippings that the section on risk is more likely to be there to reduce the risk to the fund manager as much as, or possibly even more than, the investor.

There may be a number of reasons for this, but whether the investor actually reads the risk section (normally tucked well towards the back of the PDS or IM), or fully understands them doesn't make a lot of difference: On the application form - paper or via Olivia123's online application solution - the investor acknowledges they've both read and understood the risks.

Hedge Clippings is not suggesting that the fund managers or their legal advisers are doing anything wrong or underhand, and 99% of the time they're above board (the other 1% being outfits like Mayfair 101). ASIC's recently introduced TMD (Target Market Determination) regime has attempted to rectify this, but it remains prescriptive, and depending how it is implemented, it remains to be seen who it protects more - the product issuer, or the investor.

So Hedge Clippings thought we'd come up with our own series of risk warnings for investors - they might not be "advice" in the legal sense of the word, but these "Rules" might be helpful in avoiding some well known pitfalls.

Rule Number 1: Diversify!

Commonly known as "not putting all your eggs in one basket". Diversifying might reduce your returns in the good times, but diversifying across asset classes, strategies and managers reduces your risk when compared with investing in a single asset or managed fund.

Rule number 2: Correlation!

Diversification doesn't help if all the assets (or funds) you invest in are highly correlated - in a market shakeout or period of under-performance they're all likely to move in the same direction.

Rule Number 3: Ignore the hype! (also known as "fear of missing out" or FOMO)

Investing (as opposed to speculating, or punting) is for the long term. There may be a frenzy about this or that, but these come and go. Think tulips and "Tulip Mania", which occurred in Holland in the early 1600's. There have been bubbles since, and there will be in the future - and some will see Crypto as hype, although not all crypto funds are the same. Still suffering from FOMO? Invest, but refer to Rule Numbers 1 and 2, and then number 4.

Rule Number 4: Look before you leap!

Otherwise known as "doing your research" - we could bundle up a series of rules under this one. In the building industry there's an old saying "Measure twice. Cut once". At FundMonitors we refer to it as Compare, Research, and then Invest.

Rule Number 5: Words are words, but only performance is reality.

This also covers a range of warnings. How often have we heard the sad tales of poor investments - or total loss (Mayfair 101 again) based on the premise such as "I liked the manager" or "my friend recommended..."

Rule Number 6: Understand the Ratios!

There's a whole box full of ratios and formulas used in the research reports. Sharpe, Sortino, Up Capture, Down Capture, Drawdown, Alpha, Beta - and that's before we start on fees and high water marks. If you're going to do your own research, it's worth getting your mind around them.

Rule Number 7: Fees aren't always bad!

Now this becomes tricky. High fees and poor performance are bad. So by the way, are low fees and poor performance. Generally in life you tend to get what you pay for - a good glass of wine for instance, is normally better than a glass from a box of Chateaux Cardboard, even though they contain the same alcoholic content. So when evaluating fees, make sure you're getting what you pay for.

Rule Number 8: Understand your risk and reward tolerance - or "know thyself".

All investments involve risk. (That's straight out of the offer documents!). What's your tolerance for risk? To be fair that's part of what ASIC's new TMD regime mentioned above is all about.

Rule Number 9: Markets Fluctuate! So does manager and fund performance.

This could be Rule number 3 below Diversification and Correlation, but it's not quite so clear cut. As we've pointed out in the past, the Top 10 performing funds in the five years to 2015 is a different group to the Top 10 to 2020. While investing in managed funds is a long term exercise, it's not set and forget.

Rule Number 10: Take Professional Independent Advice!

We recently saw a statistic that only 15% of Australians use a financial advisor. There may be all sorts of reasons for that, including some of the evidence presented to the Hayne Royal Commission. If you understand the above rules, by all means do your own research. If not, you should probably seek expert advice. If you're going to use an advisor make sure they're independent and recommended. But that's probably opened up another set of rules for another edition of Hedge Clippings.

News & Insights

New Funds on Fundmonitors.com

Under The Microscope: Thermo Fisher Scientific | article by Aitken Investment Management

Investment Perspectives: Don't fear the taper | article by Quay Global Investors

10k Words - October Edition | article by Equitable Investors

September 2021 Performance News

Laureola Australia Feeder Fund

Glenmore Australian Equities Fund

Bennelong Twenty20 Australian Equities Fund

Premium Asia Fund

Frazis Fund

Insync Global Quality Equity Fund

Bennelong Long Short Equity Fund

Hedge Clippings | Friday, 22 October 2021

Every so often the "Active vs. Passive" argument rolls around, which depending on which side of the debate one is on, allows you to prove - or at least argue the point - that active management is better in spite of the higher fees being charged, or conversely, that passive or index investing is as good or better, and cheaper.

As such, it might be safely assumed that Hedge Clippings leans towards the active side of the debate, given we list around 650 active funds for comparison on fundmonitors.com. However, as above, it's never quite that simple.

Firstly there's the data - and it's worth remembering the old adage "lies, damned lies, and statistics" simply because it is easy to find plenty of examples to prove either side of the argument. Equally, it's difficult not to win the argument that fees on passive funds are lower than their active cousins.

Statistics in this case generally revolve around either the average return of a certain type of fund, or the percentage which out, or underperform either the index, or their opposite numbers. And while quoting old adages, it's also worth remembering another one, namely "that when your feet are in the freezer, and your head is in the oven, overall your temperature is average."

Averages, although we frequently use or calculate them, can be useful (for instance when wanting to prove a point in an argument) or confusing. Maybe confusing is a little too strong, so let's just say they can be deceptive, or in the wrong hands can cloud the facts.

Taking the fundmonitors.com database of 134 actively managed equity funds investing in Australia with a five year track record to the end of September, again, depending on which side you're on, you can argue both sides as per the table below:

Assuming an index or passive ETF's returns are in line with the ASX 200 Total Return, you can get better performance with lower costs than many actively managed funds.

Or, wearing the active fund manager's hat, you can outperform the passive brigade by a factor of 2-3 times if you're in the best fund (which of course doesn't stay the same over each time period) but in round terms 50% of the active funds outperform. Sorry, other hat: 50% underperform. Take your pick!

Our point is this: Different strokes for different folks. Investing in passive funds is a suitable, low cost and simple way to gain exposure to the average return of the 200 companies which make up the ASX 200 index. Importantly, it requires limited knowledge or skill as such, and therefore may be suitable for small or early stage investors.

However, you're only going to get average performance.

Investing in active funds requires information and knowledge (your own, or that of a suitably qualified and knowledgeable advisor) among other attributes, which include time, and ongoing monitoring and attention. Above all, it requires the investor's understanding of their risk profile, and return objectives in selecting the correct funds.

Taking the time, and doing the research, can make a world of difference.

News & Insights

Manager Insights Interview | video by Laureola Advisors

Are Bonds Really Defensive? | article by Premium China Funds Management

Ransomware is so rife it's a threat to national security | article by Magellan Asset Management

Global Matters: Infrastructure, interest rates & inflation | article by 4D Infrastructure

September 2021 Performance News

Quay Global Real Estate Fund

Paragon Australian Long Short Fund

Insync Global Capital Aware Fund

Surrey Australian Equities Fund

Bennelong Emerging Companies Fund

4D Global Infrastructure Fund

Hedge Clippings | Friday, 15 October 2021

Headwinds, Tailwinds and Crosswinds.

In line with the wild weather that the Eastern half of Australia has endured over the past few days, this week Hedge Clippings thought we'd consider the factors presently governing markets - namely the macro headwinds, tailwinds and crosswinds facing the global economy.

For the past decade or so these have mainly been tailwinds: The growth of China, low interest rates, low inflation, QE, and massive liquidity providing easy credit, both to business and the consumer. Add the tailwinds of technology, and markets have benefitted from investors who have been happy to ignore record valuations, which by any historical standard have been stretched.

COVID created a storm - or at least a crosswind. However, looking forward there's likely to be a post COVID led recovery, partly as a result of stimulus, and partly through pent up consumer demand and accumulated bank balances, which will add to the above tailwinds, at least for a time. Luckily for treasurers globally that the massive increase in COVID induced government debt coincided with historically low borrowing costs.

And so to headwinds: Paradoxically some of these are the reversal of some of the tailwinds. China is slowing and facing a credit/property crisis. Inflation is emerging, partly as supply chains become stretched. Central banks are only months - or less - away from reducing their bond buying as inflationary concerns increase, and balancing that tapering, and keeping markets stable at the same time, will be a high wire act at best. Interest rates are as low as they're going to be, and can - or will - only increase in due course, which in turn will impact valuations.

Crosswinds are more difficult to predict, but as any student of aviation would know, can be more devastating, as COVID showed. China manages to feature as both a tailwind and a headwind, and depending on their actions (as opposed to intentions) regarding Taiwan, a major potential crosswind. As does climate change, although some would argue this should fall into the headwind category.

This week we spoke with Charlie Aitken about some of the challenges the markets are facing as a result of these winds. Charlie's an optimist, but a realistic one, and feels the markets are facing a few choppy months leading towards the end of the year. His solution is to buy good companies propelled by tailwinds, and less likely to be affected by crosswinds. Meanwhile, Damen Purcell spoke with Richard Ivers of Prime Value about the end of the market's positive 11 months run, and where he thinks it might head from here.

And while on the "climatic" theme, Scomo has his own wind issues to manage. Go to Glasgow (something most Englishmen have tried to avoid over the years) and come face to face with the global (and Royal) climate backlash, or stay at home, but still cop the criticism from afar? Or will he embrace, (or at least accept) climate change and seek to address it, and in so doing create massive headwinds from his coalition partners and the coal mining industry?

Who'd be a politician?

News & Insights

New Funds on Fundmonitors.com

Manager Insights Interview | video by Aitken Investment Management

Manager Insights Interview | video by Prime Value Asset Management

Sic Parvis Magna: Great Things from Small Beginnings | article by Aitken Investment Management

SMSFs: seek new investments or accept a possible humble retirement | article by Laureola Advisors

September 2021 Performance News

Cyan C3G Fund 

Prime Value Emerging Opportunities Fund

Premium Asia Fund

Equitable Investors Dragonfly Fund

Airlie Australian Share Fund

Bennelong Kardinia Absolute Return Fund

Longlead Pan-Asian Absolute Return Fund

Hedge Clippings | Friday, 08 October 2021

Last week Hedge Clippings dared to feel sympathy towards our current crop of politicians - something we're not normally accustomed to doing. We deliberately avoided mentioning the demise of NSW's Premier, Gladys, even though the news was hot off the press at the time. Suffice to say, we were saddened by her news as we genuinely believe, political preferences aside, that not only did she manage a difficult job well under extremely difficult conditions, but that she was undone by a bad choice of partner. Most of us can admit to having made the same mistake over the years. Some of us more than once, present company excepted.

To be fair, thanks to the federal/state system, devised as it was over 120 years ago at a time when communications and technology were vastly different, for a population of probably well under 5 million people, we have far too many politicians.

However, if we think we have too many current politicians, that pales into insignificance when one considers how many ex Prime Ministers are still doing the rounds. To save you Googling the answer, nine of the last ten PM's are still with us, and if you include also "almost" PM's, ten out of ten, as John Hewson would have been a Pwime Minister as well had he known the difference between a cake and a cabbage!

Unfortunately, with the exception of Julia Gillard, all of the ex's seem to think they are entitled to pontificate to their less than adoring public on whatever subject matter takes their fancy. Of course the media love it, and in particular in the case of Kevin Rudd and Malcolm Turnbull the French media at the current time.

It must be something in the personality of ex Prime Ministers, particularly those that had a relatively short term and/or unspectacular success in the top job such that either the electorate or their own party dumped them (in Kevin Rudd's case both). As a result, it seems that in retirement, complete with pension, they suffer from "relevantitus" a condition we've just coined to describe those that can't handle the fact that they are no longer relevant - except of course, to themselves.

OK, enough soap box for today. Back to managed funds and their performance.

As most fund managers would know, last Tuesday saw the introduction of new legislation involving a TMD, or Target Market Determination. Essentially this requires the issuer of retail funds to be very specific about the type of investor who should be investing in their product. At face value this is a great idea, because sooner or later an investor in the wrong product is going to result in tears. Or worse.

One issue with the TMD concept is that most equity based managed funds are considered to be suitable for a long term investment. However all too frequently the reality is that for a variety of reasons the performance of individual managed funds varies over time, including as a result of manager skill, or the interaction between the underlying strategy and prevailing market conditions.

As a result although nearly every offer document, and now nearly every fund's TMD suggests investing for the long-term, namely seven or eight years, the reality is that every portfolio requires constant evaluation, and adjustment along the way.

Diversification across a number of funds is a logical and sensible solution to overcome this. However, simply selecting a portfolio of the top 10 performing funds over the previous five years is no guarantee of their future performance. If you re-run the numbers five years later (as we do at fundmonitors.com) you may, or will, come up with a significantly different list of top 10 funds.

For instance, investing in a portfolio of the top 10 funds over 5 years to August 2016 would, over the following 5 years to August 2021, have returned 10.78% per annum - just below the ASX200's return of 10.94% over the same period.

Meanwhile investing in new portfolio the top 10 funds over the five years to August 2021 would have returned 16.11% per annum, so your capital would have grown by 68% more by switching or re-weighting.

Of course investing based on past numbers and with the benefit of hindsight is simple. Ask any economist. In the real world, it is not so easy.

News & Insights

New Funds on Fundmonitors.com

Space exploration is going private | article by Magellan Asset Management

Traditional Markets Stable in August; Trouble in September | article by Laureola Advisors

Touch gives investors a slice of Afterpay talent | article by Cyan Investment Management

August 2021 Performance News

Insync Global Capital Aware Fund

September 2021 Performance News

Bennelong Concentrated Australian Equities Fund

Collins St Value Fund

AIM Global High Conviction Fund

DS Capital Growth Fund

Delft Partners Global High Conviction Strategy

Bennelong Australian Equities Fund

Hedge Clippings | Friday, 01 October 2021

Who'd be a politician in Australia?

Hedge Clippings is generally not forgiving of politicians, but we should all be thankful for them over the past 18 months or so, whatever their level, party, or persuasion. As much as we might think they should have done more, or could have done less (or in Clive Palmer's case, done nothing) they've each done what they thought was best for their respective electorate, given the information available.

Most importantly of all, we should be thankful we haven't been in their shoes. They stood as candidates, presumably with no knowledge of what Wuhan was about to unleash on the world. And the only people who should be more thankful than the public are their respective opposition parties, who're able to criticise from the sidelines without fear of having to manage the crisis themselves.

And so to markets:

Both the ASX200 and the S&P500 suffered a rare negative month in September, falling 1.85% and 4.65% respectively. As we come into October, which has historically been a troublesome month for equities, this might make some investors with long memories nervous. In Australia, you have to go back to September/October 2013 to find consecutive positive performances for these two months, and in fact, since the turn of the century that has only happened on four ('04, '06, '12, and 13) occasions.

September's fall on the ASX meant the first negative month in the past year, the first time in a long time, and certainly this century that we've had 11 straight months of gains. And apart from the 2 month COVID sell off, there hadn't been a real crisis since the GFC, which lasted from November '07 to mid-March 2009.

On the bright side, one could say the past 18 months has been a great time to be an investor in equities, as many fund managers would no doubt agree. Since April 2020, once the initial shock of COVID passed and government support kicked in, to the end of September 2021, the ASX200 Accumulation index has risen 51%. The S&P500 has fared even better, rising 71% in spite of its fall of 4.65% in September.

Inevitably, historian or otherwise, one has to question this current trend. There are those who point to the tail winds of technology, disruption, and a changing world, while the doubters point to inflation, tapering, and geo-politics, particularly in China, which is facing its own internal issues regarding credit, property and energy supplies.

Changing tack:

Tuesday next week sees the introduction of ASIC's new Target Market Determination (TMD) regime, requiring issuers and distributors of retail managed funds to specify the relative features of their products prior to the investor making a decision. Whether this will improve the investor's situation, or just create another layer of administration remains to be seen, but it is interesting to see that James Mahwhinney of Mayfair 101 fame (or infamy) still seems to believe he's done no wrong, in spite of burning his investors' millions.

At Fund Monitors we're constantly asked about the "best" fund, and we avoid the answer with good reasons. One, diversification across multiple funds, asset classes or strategies is the best way to reduce risk, and two, the best fund for one investor might not suit another.

So look before you leap - in other words, compare, and do your research, before you invest.

News & Insights

What is a Life Settlements investment? | article by Laureola Advisors

Reduce your risk and pick outstanding companies | article by Airlie Funds Management

Global small caps: From unrecognised growth to future global titans  | article by Ausbil Investment Management

Crackdowns in China: Part 1 | article by Arminius Capital 

Banning unvaccinated workers could impact our economy | article by Pendal

August 2021 Performance News

Insync Global Capital Aware Fund

Hedge Clippings | Friday, 24 September 2021

Last week in Hedge Clippings we quoted John Lydgate's "You can please some of the people all of the time, you can please all of the people some of the time, but you can't please all of the people all of the time". Observing the TV news from Melbourne this week, it seems the 14th century monk left out another (luckily small) group: Those that you can't please ANY of the time. Had they been around in Lydgate's day they may not have faced paint balls and rubber bullets, but it is also unlikely they would have been able to back up again the next day. Meanwhile moving to markets - particularly equity and property - both of which have had an extraordinary run for all sorts of reasons, partly in spite of, and partly because of COVID. This may well continue for some time to come. The US Fed, and other central banks obviously want to keep things on an even keel, particularly knowing the level of leverage in the system, and the havoc that inflation and/or any material rise in interest rates will wreak. COVID will eventually pass (to a greater or lesser degree, depending on some known and unknown knowns) and this will create a surge of consumer and business activity, although there are going to be permanent changes to some sectors. Most of those changes or adjustments have already been factored into equity models and valuations. There are still the tailwinds of global growth due to demographics as emerging countries continue to develop - if not a middle class, a great mass of people who are rising above subsistence or a hand-to-mouth existence, and the infrastructure pipeline, both in developing, and developed countries. So where's the problem, or the hesitation? Valuations are, if not stretched, certainly high by historical standards. There are two views on this - they will either revert to the mean, or remain high to become the new normal. Either way, it is unlikely they will get stretched further, except in specific sectors. In the US retail sentiment has turned decidedly bearish whilst the S&P500 continues its upward trend, as shown by the chart below courtesy of Longview Economics. It is also worth keeping in mind that the S&P500 has doubled (admittedly from an oversold position) in the past 18 months, but even ignoring the initial COVID slump has risen approximately one third in less than 2 years in spite of COVID.

China is a problem, and whether Paul Keating thinks we should kow-tow to them or not, we'd assume he's a pretty lone voice, not only in Australia, but globally (excluding in China itself of course). Australians, or our media, may be somewhat xenophobic, but we're not alone in being subjected to their wolf warrior style of diplomacy.   Taiwan, the South China Sea, and the associated military build up is going to remain a (possibly the) major theme for decades or more. If less, then watch out and head for the hills, or the bunker if you have one.   But China is also facing significant internal economic issues, including the Evergrande property/debt/credit issue that has the potential to cause significant social ripples as well as economic ones. Evergrande it may once have been, but no longer, and the sheer scale and extent of their property empire, and the number of Chinese investors impacted will have many, both within and outside the ruling elite, concerned.   President Xi has ultimate control, but to what extent he can control the Evergrande crisis is uncertain. Headlines such as "Pop goes the Chinese Property Bubble" in the Wall Street Journal, or "Has China's Housing Crisis Finally Arrived?" from Foreign Policy may be slanted by an outsider's view, but the size and extent of Evergrande's risk to the Chinese economy are significant, and yet to play out. Finally, it wouldn't be Hedge Clippings without the opportunity to take a swipe at ex PM Kevin Rudd, who, always the opportunist himself, this week wrote a piece for the French newspaper Le Monde criticising the decision to cancel the French submarine deal in favour of a joint US, UK version. Given France's success (or lack of) on the battlefield or at sea over the past few centuries, including more recently in WWI and WWII, we're probably better off without the French - or their submarine

News & Insights

Is Evergrande Contagious? | article by Premium China Funds Management

What are the Benefits of Life Settlements for Society? | article by Laureola Advisors

Investment Perspectives: Thinking about office  | article by Quay Global Investors

August 2021 Performance News

Laureola Australia Feeder Fund

Bennelong Twenty20 Australian Equities Fund

Delft Partners Global High Conviction Strategy

Glenmore Australian Equities Fund

Frazis Fund

NWQ Fiduciary Fund

Hedge Clippings | Friday, 17 September 2021

"You can please some of the people all of the time, you can please all of the people some of the time, but you can't please all of the people all of the time."

In the past we have, (along with none other than Bob Dylan) incorrectly attributed the above quote to Abraham Lincoln. Maybe we should leave Bob to his music and poetry. After all,  his 1965 classic "Like a Rolling Stone" is still ranked in the all time top 10 hit songs, in spite of him being booed for playing it on stage at the time.  

The quote actually precedes Lincoln by some 400 years, as it should be correctly sourced to John Lydgate, an English monk and poet who lived from 1370 to 1450 and was a follower of Chaucer. Probably enough information for a Friday, but you may need it next time you play trivia.

But, yet again, we digress. The point is, it seems - possibly thanks to or because of Covid - everyone's either pleased or displeased, and not only about Covid either. (By the way, who would have thought that being an epidemiologist would put you on the nightly news?)

We're either whingeing because we're locked down and there's not many cases, or because they're lifting restrictions too early in the places where there are too many. That probably depends on which LGA you live in. Or you're pleased because you want everyone in the restaurant to be double jabbed, or unhappy because you can't go there if you're not.

Then there are those complaining about "personal freedom" about having to have a jab (which as far as we know is not the case) and ignoring the personal freedom of those around us wanting to get out and about without getting sick. While not dismissing the seriousness and effect of COVID in Australia let's look at some cold hard facts:

We have now had 3,158 cases and 44 deaths from Covid per million of the population. The USA has had 129,492 cases and 2,088 deaths per million, while the UK has had 111.601 cases and 2,050 deaths per million. In other words, on a per capita basis, you're close to 50 times more likely to have died of Covid in the US or UK than in Australia.

BTW, and still on Covid and trivia, but serious trivia, Covid ranks as the 26th most common cause of death since January 2020 in Australia, whilst in the US it ranks 1st, with 685,295, and the UK the second, with 134,805 (behind dementia and alzheimers). For more details see worldlifeexpectancy.com.

And in spite of this, Matt Canavan, a federal government senator, claimed this week that vaccinations aren't effective or should be optional, and "we should take a leaf out of the UK's book"!  We're assuming his only excuse is that he's from FNQ, and perhaps the news hasn't reached him yet: Covid kills lots of people, but particularly the unprotected.

So back to John Lydgate's quote. It seems nothing has changed over the ensuing 600 odd years. Or 700 if it comes to that, when the plague known as the Black Death wrought havoc across the world, (which according to the website History was also possibly passed to humans by a tarabagan, a type of marmot in Mongolia) and which eventually petered out, possibly due to the then quarantine efforts.

What's all this got to do with managed funds you might ask?  Precious little, except that there's a perpetual debate around active vs passive funds, returns vs. risk, and any number of other aspects that you agree or disagree on.

You can please some of the people.......

News & Insights

Vantage Private Equity Growth 4 Close Date: 30 September 2021 | Vantage Asset Management

10k Words - September 2021 | article by Equitable Investors

The Rise of the Contactless Economy - A Global Megatrend | video by Insync Fund Monitors

The Long and The Short: What reporting season can tell us about life in Australia  | article by Kardinia Capital

August 2021 Performance News

Premium Asia Fund

Equitable Investors Dragonfly Fund

Collins St Value Fund

Longlead Pan-Asian Absolute Return Fund

Airlie Australian Share Fund

4D Global Infrastructure Fund

Prime Value Emerging Opportunities Fund

Hedge Clippings | Friday, 10 September 2021

China - Risk vs Opportunity

This week we had the opportunity to catch up with three fund managers in the now normal 'Zoom Room' to explore the current investment risks - or opportunities, depending on one's point of view - of investing in China.

Quite deliberately we chose individual managers who hold opposing views as we've always been advised that it takes two to create an argument. Of course, we chose carefully there, so while everything was conducted with absolute civility, we did want to explore both sides of the debate.  

We were joined by Robert Swift of Delft Partners, a global asset manager with significant experience across the Asia-Pacific markets. His view can be summarised in his opening statements - opportunities in China may not be what they were, but it certainly remains an investable market.

Jack Dwyer, from Conduit Capital is a global manager, investing with an eye on the future, noting that 70% of the world's population will be millennials or Gen Z by 2030. Hedge Clippings is just getting used to being termed a Baby Boomer, so always has to calculate what these generations represent, other than billions of people with a different taste in music, and who have probably never heard of Dylan, Dire Straits, or Van 'The Man' Morrison.

But we digress - Jack is equally firmly on the opportunity side when it comes to investing in China, notwithstanding, or possibly in part as a result of recent concerns and weaknesses in Chinese-related markets. Jack believes the current situation is part of a strategic plan by Beijing that many in the West may be misunderstanding.

Alex Pollak from Loftus Peak Global Disruption Fund has a different opinion, having invested successfully across the Chinese 'theme' in the past, and while accepting that Chinese valuations might look attractive, believes that the shift away from shareholder benefits back to those of the Communist Party or State makes the risk unattractive for the time being.

As much as we tried to keep personal views and opinions out of the discussion, and accepting that our three guests are professional investors in their fields, with many decades of experience between them, compared with Hedge Clippings' mere position as a spectator on the sidelines, such was not to be the case. In any event, our bias evened up the argument, even if it didn't strengthen the 'risk' case.

You can watch the full interview here, and make your own mind up - assuming of course, you're not already on one side or the other.

Meanwhile, this week AFM's COO, Damen Purcell, also spoke with Jonathan Wu from Premium China Funds Management specifically regarding Asian Fixed Income, and some of the opportunities and challenges within the sector. You can watch the full interview here.

Staying on the China theme, at least locally, and maintaining the cynical view for which we may have been noted for previously, comes a report from Bloomberg earlier today that China is lobbying the Australian government to support its membership of a group called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, saying "China is committed to building a community with a shared future for mankind, and stands ready to work together with all the other parties to promote globalisation and regional economic integration."

Given China's attitude towards Australia over the past 18 months, this seems bizarre.

Did we mention we're a cynic?

And on that note, have a safe and happy weekend!

News & Insights

New Funds on Fundmonitors.com

The Outlook for China | Roundtable Interview with Delft Partners, Loftus Peak and Conduit Capital

Manager Insights Interview | video by Premium China Funds Management

A very good business | article by AIM

To invest or not to invest in China? | article by Delft Partners

Higher inflation can be a friend to real estate investors | article by Quay Global Investors

August 2021 Performance News

Paragon Australian Long Short Fund

Bennelong Australian Equities Fund

DS Capital Growth Fund

Bennelong Kardinia Absolute Return Fund

Cyan C3G Fund

AIM Global High Conviction Fund

Bennelong Long Short Equity Fund