Hedge Clippings | Friday, 06 November 2020

"It has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time...." So said Winston Churchill on Armistice Day in 1947.

But Churchill's quote also included:

"Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise."

Isn't that the truth!

And while we accept that the US system is democracy in action, one would have thought it is not what George Washington and his fellow founding fathers quite had in mind way back when they created the Constitution. They obviously hadn't allowed for Donald Trump, who, irrespective of one's liking or disliking of his policies, seems to be playing by his own rules.

It's been wall to wall, and minute by minute on the news channels, and if nothing else has pushed COVID, record low interest rates, and a record loss by the Wallabies to the inside pages. In the case of the Wallabies, thankfully so.

Amongst all the commentary and humour, we think this one sums it up best:

"A new analysis by some guy on Twitter has found that Donald Trump would have been re-elected with an overwhelming majority if none of the votes for Joe Biden had been counted."

You can read the full text here.

So there's nothing much that Hedge Clippings can really add to our comments of last week - namely that the polls might be incorrect, the result seemed to be up in the air, and that a tie or contested result wasn't out of the question. The sad reality is that whatever the result, the USA, as "leader" of the democratic world, will be at best divided, and at worst...

Back to interest rates, but more importantly to their "QE" program - namely buying $100 bn. of government bonds ($80bn Federal, $20bn State) over the next six months. While the new ultra-low rates won't make much difference to borrowers once the banks do/don't pass all the savings on, from the perspective of a depositor there doesn't seem to be much of a case for leaving any money in the bank. Unless of course you're worried about loss of capital.

While caution is required when reading glitzy ads (for example Mayfair 101 as reported by the AFR's Jonathan Shapiro) there are good opportunities to get both a reasonable return with acceptable risk. Check out www.fundmonitors.com.

We're living in strange times, and a strange economy. Major exports are under threat from China, who seem intent on punishing Australia for not kow-towing when told to, and having the temerity to have an independent opinion.

Domestic and regional tourism however seems to be going gangbusters, and with the opening up of state borders (more or less) likely to make up for much of the loss of overseas tourists.

Meanwhile Europe, and much of the rest of the world, continues to suffer with little end in sight to a long (indoor) winter.

As the old Chinese curse goes, "May you live in interesting times".

News & Insights

Video interview with Richard Ivers from Prime Value

ESG INSIGHTS Biden's most critical investment by Nikko Asset Management

Hedge Clippings | Friday, 30 October 2020

Next Tuesday - well, it will actually be Wednesday in Australia - the world as we've known it for the past 4 years or so will have changed, or not as the case may be. In any event, the US election will be all over bar the shouting, and there's been plenty of that.

Or will it? While the polls are pointing to a Biden victory, we all know that polls can be misleading, (just ask Bill Shorten). However in the US there is a greater chance of the polls getting it wrong (refer Hilary Clinton) partly as voting is voluntary, and partly due to the "system", whereby whoever wins in each State effectively receives 100% of that State's vote.

As such, from what we understand of it, Florida could hold the key to the White House, although an interesting spectacle may arise if Trump decides he does not want to hand the keys over. Further complicating the pollster's task is the record level of pre-election day voting, and further complicating that is the complexity of the pre-polling rules and regulations.

A result that seemed clear cut a few weeks ago would appear to be up in the air with just three or four days to go, so Hedge Clippings is going to hedge our bets, and predict it could go either way, with a tie, or at least a contested result, not out of the question.

This week we had the opportunity to run a webinar to canvass the views of three fund managers, namely Rodney Brott from DS Capital (Australian equities), Robert Swift of Delft Partners (Asia), and Chris Wheldon from Magellan (US/Global). The discussion was not so much on the politics and personalities behind the election (although that's difficult to avoid), but on the economic and market effect of the outcome - win, lose or "draw" - to either side.

What was interesting was that, in spite of the different strategies involved (or at least their geographical focus), while there were different views, there was also a broad overall consensus. A Trump win would mean more of the same, Biden would see a marginal move to the left, particularly given the hard left views elsewhere within the Democrats, and a "draw" would lead to uncertainty, and markets hate uncertainty.

Other key themes to emerge were that, whoever wins, the US is waaaay overdue increasing spending on infrastructure, and that the race for the White House is only part of the issue, with predictions that the Senate could well change to Democratic hands, potentially giving them the trifecta of the Presidency, Senate and the House of Representatives which they already control.

Whichever way, possibly excluding a Trump victory and a Republic Senate victory, volatility was expected to increase. To the average investor volatility is a negative, but as Chris Wheldon from Magellan pointed out, to a fund manager volatility can create opportunity - namely to buy stocks that are oversold, that were previously overpriced.

Another theme to emerge was that even though Trump's persona (narcissistic personality disorder) alienates many of his countrymen and women, and seemingly a majority of Australians, from a policy perspective (up until COVID) he had some significant achievements: No war on his watch (in fact, troop withdrawals), increased employment, reductions in taxation.

Meanwhile in the foreign policy sphere: Standing up to North Korea (and Iran), confronting China's threats to security (and particularly  IP theft), moving the US embassy to Jerusalem, leading to the recognition of Israel by the UAE.

If you have the time (45 minutes) you can watch the recording here. 

One other topic canvassed was the recent move upwards in US 10-year bond yields, as highlighted last Friday in Longview Economics' weekly report, headlined "Bonds - the BIG SHORT?". As Longview's research states, "Bond yields dictate and determine key big picture sector allocations. Getting bond yields right, therefore, is critical for most money managers/investors."

Longview point out that having made a record low on 4th August, 10-year bond yields have been edging higher, and more recently accelerating such that they have broken the 50 day moving average and have now reached their 200 day moving average, a key technical resistance level.

Longview conclude that the level of stimulus in the pipeline is especially large, and the case for a global economic boom is growing - assuming a vaccine can be successfully developed and released. And finally, the potential for further fiscal stimulus post US election (and presuming increased infrastructure spending) could see an increase in medium term US inflationary pressures, and thus higher bond yields.

Watch out!

Of course, also in the diary next Tuesday is the Melbourne Cup, which this year will be spectator free and therefore presumably silent. At least Victorians will be able to party, even if not at Flemington itself. Congratulations to all Victorians for their patience (even though we've heard a few grumbles from some quarters) while under lockdown.

News & Insights

Webinar: Fund Manager Roundtable on the US Election

The Presidential Volatility Kink by Arminius Capital

Hedge Clippings | Friday, 23 October 2020

Hedge Clippings has limited knowledge of the US Presidential election outside of that which is dished up via the internet, email, social media, in the print media or on the nightly TV news. So while not one to readily agree with much of what emerges from the Donald's mouth, we do concede that the world and global media is full of "Fake News", albeit much of it coming from the White House itself.

The issue is that in order to get a balanced view, one has to consume or source news and opinion from multiple sources, and then try to pick one's way between them all in an effort to decide what is real and what's being fed to you. Some is highly slanted - take your choice, left or right, or possibly somewhere in between.

The problem is of course that there doesn't seemed to be any truly neutral news or information feed - every piece of news or opinion is written by someone (self included) with an opinion, view, or bias built in. One thing we can be certain about is that if it's coming from a politician, then it's what they want you to believe - otherwise they're out of a job (or at least the one they currently occupy) next time around.

Once upon a time the media wasn't so powerful, persuasive, or invasive. That was before television (yes, Hedge Clippings has vague recollections of such a time), but even TV was relatively benign way back then - or maybe we weren't as aware or cynical as we have become. However, the internet, email, and social media has totally changed the "news" landscape. Visit Google, YouTube, Facebook (if you must) and the algorithms behind the scenes to a large extent dictate what you are presented with.

Even if you do a Google search for a specific category, you're likely to be presented with ads or articles which target you based on your demographics, previous page views, searches, likes or dislikes. YouTube, and you're going to get video content delivered according to your past viewing habits. That's ok, and very convenient up to a point as it saves you time, but when it comes to news and opinion you're either going to get what you want, or what you deserve.

Email's no different - you can block messages from those you don't like, but they have ways and means of getting around that. Particularly politicians, which gets us back to our original theme: The US Election. Just check out this article from the ABC (itself not unknown for, if not bias, certainly a hefty slant) outlining the email tactics of US politicians, and Trump in particular.

It's clear we have NO idea of the average American's intelligence or outlook. Based on what we see, or believe, and is dished up in the media, The Donald's chance of being elected Prime Minister of Australia is probably zero - or at least no better than Clive Palmer's. Yet in the US it seems there are sufficient voters who think he's the Messiah, such that in spite of being behind in the polls, he might still be in the White House next February.

And if you believe some, including the man himself, he might dig in anyway and refuse to leave even if he loses the election.

As we mentioned at the outset, Hedge Clippings has limited knowledge of the US election process. Looking behind the person and trying to get a clear view of policy - on either side - can be difficult given the focus on what sells on TV. Normally we'd view a Republican victory as good for markets, and a Democrat victory as bad, but will that be the case this time around?

On Wednesday next week we will be holding a webinar to discuss the potential market and investment outlook post the US election. I will be joined by three excellent fund managers, each with significant experience in their particular field and sector:

We'll be speaking with Rodney Brott from DS Capital, Rob Swift from Delft Partners and Chris Wheldon from Magellan Asset Management to get their perspectives on the upcoming US election and how they expect it to influence their investment decisions.

The session will be interactive with the opportunity to ask questions of the panelists.

When: Oct 28, 2020 4:15 PM Canberra, Melbourne, Sydney

Register in advance for this webinar: Register Here.

After registering, you will receive a confirmation email containing information about joining the webinar.

And on that note we will now turn on the TV to receive the latest opinion on who won (or lost) today's Trump/Biden debate, check emails from those wishing to influence me one way or the other (in spite of the fact I'm not a US voter) and try to steer my own path through the media jungle.

News & Insights

Video interview with Emanuel Datt from Datt Capital

3 Places to Invest as Interest Rates Head South by Montgomery Investment Management

Hedge Clippings | Friday, 16 October 2020

For those readers of Hedge Clippings who recall the pre-Covid days when we could be a little more light-hearted in our weekly comments, join the club! Life seemed less tedious then, when even the Donald's latest missive or tweet, while still raising eyebrows, sometimes made for interesting reactions. Now we're subjected to daily statistics - be they counting cases and testing, or the trillions being spent to overcome the effects.

Not to be outdone, a couple of weeks ago Hedge Clippings included the comment that Active Equity Managers (be they long-only, long-short, or other alternative strategies) would be under pressure to justify their fee structure compared with the apparent attraction of low cost ETF's or Index funds. At that time it was too early in the month to provide the necessary statistics for the 12 months to September.

The fee debate is one that is regularly raised, not only relating to managed funds, but also when considering superannuation funds. While it is justifiable to consider fees, whether in total, or as a percentage of cost, the real test investors and advisors should also be considering is "value for money". Of course, in the case of managed funds this comes down to relative performance and risk - or at least avoidance or reduction of risk - which one would assume are what the investor is looking for, and the manager is hoping to provide.

There are some who object to high fees in principle (in spite of those same people owning or coveting expensive cars, or happily paying for quality elsewhere) but this ignores the value for money argument. Would you rather invest in an ETF which replicates the ASX or ASX200 with fees close to 0.5 or 0.10%, or an Active Equity Manager charging say 1 or 1.5% plus a performance fee of say 15%?

The answer of course is "it all depends on the performance - or the risk/reward ratio" - assuming that when comparing performances one looks at net performance after fees. That allows the investor or their advisor to make an informed decision about value for money - in conjunction of course with the myriad of other evaluation factors to take into consideration.

So is it worth paying the various fees charged by "Active Managers"? In some cases the answer is a resounding YES, in others, sadly NOT as the charts below clearly show:

Firstly, let's take the last 12 months (to the end of September) when the ASX200 Accumulation Index (ASX200 AI) returned -10.21% vs. Active Funds -0.94%. Over that period 76% of Active Equity Funds outperformed, with the "outperformers" returning on average 4.16% - or over 14% against the ASX - and by implication, an Index ETF.

But within that group there was widespread divergence or distribution of returns - negative -10.03% through to +39.13%. One would assume that a manager returning -10.03% charging 1.3% management and 15% performance (obviously not paid as it was negative) would not qualify as good value for money, whilst the one returning +39.13% was well worth their higher management fee of 1.6% and 20% of performance.

Over 3 and 5 years the numbers for the ASX200 AI have been better (but not stellar thanks to the past 12 months) but Active Managers on average have still outperformed, but not to the same extent, perhaps strengthening the argument that they don't provide value for money. Once again however, this is dependent on selecting the right fund, as the charts below show.

And for those who prefer the numbers rather than the picture, below is the data for 12, 36 and 60 months to September 2020, or for details of all funds visit www.fundmonitors.com.

The graphs and table above only considered funds on the www.fundmonitors.com database that invest in Australian equities.

Hedge Clippings | Friday, 09 October 2020

As much as Hedge Clippings would like to avoid the "C" word, there's no escaping it. Covid is so much a part of all our lives, such that the news is dominated by infection, testing, and mortality statistics both at home and abroad. And looking back at recent editions of Hedge Clippings, we have been as guilty of being Covid focussed as anyone else.

Realistically, as much as we'd love to move on, Covid isn't just about the present as this week's delayed budget shows. Even allowing for some political spin, the Goverment's Budget 2020-21 summary included the following headline:

"The once-in-a-century COVID-19 pandemic has fundamentally reshaped Australia's economic and fiscal outlook."

Without the spin, the word "outlook" would, or should, have been replaced by "future". From a forecast surplus of $6.1 billion (0.3% of GDP) in 2020-21, the figure is now a deficit of $213.7 billion, or 11.0% of GDP. Somewhat optimistically this is expected to improve to 3% in 2023-24, and then decline further to 1.6% by the end of the medium term. Hedge Clippings is not exactly sure of the definition of "medium term", except it's likely to be well beyond 2024. Although we guess, like age, it's relative. A bit like a medium bodied wine, but maybe we're getting ahead of ourselves, even though it is Friday afternoon.

To be fair, there's a valid get-out included: "Until a vaccine is developed and widely deployed, significant uncertainty remains".

Equally, we did opine last week that the government shouldn't hold back, urging the Treasurer to spend more, not less, but just not to waste it. What he did waste was the opportunity to ensure more of the nation's superannuation was funnelled into infrastructure spending, and as a result employment and the future. Maybe next year...

And given the global effects of Covid, the financial and health risks here are minuscule compared with those elsewhere. With the US election less than 4 weeks away on the first Tuesday in November (coincidentally also Melbourne Cup day), the polls are increasingly looking like a Biden victory, which if correct is going to significantly impact the future.

As of 6 October, according to the Guardian's poll tracker, Biden is leading 50.4% to Trump's 41.3%. Polls, however, can be misleading (just ask Bill Shorten) and the US system is not simply a case of who gains the most votes on the day (just ask Hillary Clinton). The outcome will undoubtedly affect markets, but the view that Biden is far-left seems to be incorrect based on The Economist's latest edition, which describes a Biden win as "only a little lurch leftwards" based on his spending proposals of around 3% of GDP (presumably excluding any Covid stimulus), compared with Bernie Sanders' 23%.

However, that's still considerable, with a forecast total new spending of US$7.27 trillion between 2021 and 2030, about half of which might be covered by tax rises, and the balance by public debt which is forecast to double - from the current 100% of GDP to a mouthwatering (for some) 200% by 2050.

Over $3.5 trillion in increased taxes will certainly scare a few (and possibly Trump amongst them if he ever gets to pay tax), but in reality only a few. Again from the Economist, the greatest change in after-tax income (-18%) as a result of Biden's tax plan will only affect the top 0.1% of income earners, followed by a fall of less than 10% for those in the top 99 - 99.9%. Even those in the 95-99% of income earners will only be worse off by around 2%, so they still should be able to scrape by.

The Economist describes Biden as "The Pragmatist". Assuming he wins - not a sure-fire outcome, and even if he does, there's no guarantee the current President will vacate the White House - it will certainly make for a change to the evening news.

Finally, before signing off we remember that today would have been John Lennon's 80th birthday had he not been shot in New York aged just 40.

News & Insights

Sep '20 - Speculative Markets, Deteriorating Backdrop, Where to Hide? by Laureola Advisors

Deferred loan repayments are hitting the banks by Montgomery Investment Management

New Funds on Fundmonitors.com

Hedge Clippings | Friday, 02 October 2020

Whilst at this stage it's too early to have firm details on fund performances for September, neither the ASX nor the S&P500 (or almost all other global indices) fared too well for the month, so we'd expect the usual wide range once we have the bulk of the numbers by this time next week.

Active equity managers will be under pressure to perform to justify their fee structure. They have certainly done that (and more in many cases) in the 12 months to the end of August, based on AFM's Index Report which revealed that against a fall of -5.08% for the ASX200 Accumulation Index, All Equity funds rose 5.36%, whilst on a geographic mandate basis funds investing in Australian/NZ equities rose 3.25%.

Not surprisingly, given the US market's better performance over 12 months, funds investing both in Australia and Globally fared better at +5.44%, whilst those investing specifically in the US have returned 9.08% - although this latter group are well below the S&P's 12 month performance.

Irrespective of the above facts and 10% average out performance over 12 months, the fee debate will no doubt continue: Is it worth paying higher fees for above market performance? One would have thought so, provided the outperformance came with lower risk, and consistency over time.

Turning to economic matters, next Tuesday will see the Treasurer Josh Frydenberg deliver a belated budget, with expectations of a deficit around $200bn, give or take a few billion. No doubt there'll be those (particularly amongst the opposition) who will try to make mileage out of that number when earlier this year expectations were for a small surplus.

From our perspective, the government has to do whatever it takes to manage the economy out of the COVID inspired train crash that has occurred. Provided sufficient quantities of the billions of deficit dollars are directed towards supporting those sectors of the economy or community that are in need of support, whilst stimulating those that will have the maximum effect on employment and economic activity, that would seem to be their obvious responsibility.

Will everyone and every sector be happy? Undoubtedly not, and we'll hear plenty from those that aren't, and very little from those that are. Will it put a burden on future generations? Of course, but not nearly as large a burden (or trauma) that would be caused by not creating the debt to fund the stimulus the country requires. If anything, we'd urge the Treasurer to spend more, not less.

Just don't waste it.

Australia has always been known as the "lucky country". Casting an eye around the world right now it may be easy to complain, but where else would you want to be?  While there are stories of the thousands of Australian citizens desperate to return home but unable to do so due to a lack of quarantine hotels or facilities to handle them, we don't hear of too many US, UK or EU citizens desperate to leave our shores for their homelands where chaos reigns supreme.

News & Insights

If China Rebounds, Australia Gets an Assist by Arminius Capital

Hedge Clippings | Friday, 25 September 2020

Touch wood - that should make all the difference - it seems that there's some light at the end of the COVID tunnel, such that hopefully the worst of the lock down restrictions might be behind us. Hopefully - there's that word again, and we were always taught that "hope is not a reliable strategy" - the easing is not too much too soon, and we don't slip back into rising case numbers.

No such luck in the UK, Europe (France in particular), the USA and many other countries as well, including Israel and Canada. Trump continues to maintain what a great job he's done in restricting US deaths to 200,000 (and counting), while in the UK Boris, who is eating humble pie (not) and facing threats of 50,000 cases a day within a month, is instituting a 10PM curfew, presumably because the virus, like the werewolves, only comes out at night.

What is of concern, based on the chart below from Longview Economics, is that the highest number of new infections in the UK in recent weeks has been amongst the 2 - 34 year old age group.

But Wuhan, China, where it all began, has reopened for international flights. Meanwhile, this week at the UN Chinese President Xi refused to accept any responsibility for the economic and medical carnage COVID-19 has wrought on the world.

Thank our lucky stars we're in Australia, with hope (again) we're heading in the right direction. While on the subject of direction, and Australia, there's good and bad news today on the economic front depending on one's point of view: The Federal budget surplus forecast just a few months ago to come in at $5 billion has now settled to a deficit of $85.3 billion or 4.3% of GDP for 2019-2020. So what's "good" about that?

Well for a start there was virtually no debt to speak of to start with, leaving the government with plenty of fiscal room to move. And while there's still a huge task ahead, one would assume that the budget due to be handed down by Treasurer Josh Frydenberg on Tuesday week will contain a mix of ongoing support where needed, while weaning others off the welfare nozzle where it's not.

Turning to markets, and equity markets in particular, and not surprisingly volatility remains elevated. Not at the record levels of over 80% in early March, although it spikes from day to day, but roughly double its average of less than 15% during 2017 - 2019. Maybe markets are turning their collective minds to the outcome of the US election on November 4?

News & Insights

The US senate result could reverberate for decades if under Democrat control the filibuster goes by Magellan Asset Management

Hedge Clippings | Friday, 18 September 2020

COVID rolls on, and on and on. While in Australia we're trying to eradicate it, elsewhere in the world it seems to be well on the way to its much anticipated second wave. It has almost become the new normal item of news and conversation, and seems likely to remain so for some time to come.

In spite of the dire predictions, Australia's reporting season seemed to pass with more "ticks" than "crosses" as Matt Williams from Airlie Funds Management explains in this video.

This week AFM's Damen Purcell also recorded an interview with Nicolas Bryon who manages APSEC's Atlantic Pacific Australian Equity Fund. Both Airlie and APSEC invest in Australian equities but each takes a significantly different approach: Airlie being "long only" with a maximum cash position of 10%, while APSEC uses shorting and derivatives and therefore fits into the Long/Short basket.

You can view the videos below, but the point of this article is not to compare the two directly, but to emphasise the benefits of diversification when selecting funds, just as one would when investing directly in individual stocks. Of course, it can be argued that one of the benefits of investing in a single managed fund is that there is automatically an element of diversification to a greater or lesser degree depending on the number of individual stocks in the portfolio. However, investing in a single fund doesn't provide diversification across strategy, asset class or geography, and also leaves the investor exposed to individual fund or manager risk.

Hedge Clippings has previously detailed the variance in both strategy and manager performance from year to year - hence the warning on every offer document that past performance can't be guaranteed, and that the proposed time frame for investment is generally 5-7 years. As we've stated before, chasing top-performing funds is tempting, but can be risky. For instance, of the top twenty performing funds in 2010 (with performance ranging from ~+25% to over +100%), thirteen had negative returns the following year, and ten lost 20% or more. Only five, or 25%, managed a positive return in both years. While those two years might be a stand out example, the reality is that it is a familiar story, just as is individual stock sector selection.

Diversification therefore should be uppermost in investors' and advisors' minds when reviewing funds and making investment decisions. Not only diversification across managers or funds, but also across strategy, style and geographic mandate, particularly considering the impracticality of trading funds the way one would trade a market or stock.

In this regard, the correlation between strategies and funds, along with their respective up capture and down capture ratios, become important tools. Interestingly correlation, given its importance particularly when markets dislocate as they did earlier this year, is not always used by many investors or analysts.

Investing across funds or strategies with low correlations to each other may not result in having many (or any) of the top performers included in a portfolio, but is likely to produce a more attractive overall result over time with lower risk than chasing individual high flying funds. It also allows the investor to target an acceptable risk level, rather than just focusing on returns.

Changing tack: Today marks the 50th anniversary of the death of Johnny Allen "Jimi" Hendrix who, in spite of the fact that his musical career only spanned four years, had a lasting impact on the musical world. Not necessarily to everyone's taste, he was Pop Musician of the Year in 1967, and in 1968 Rolling Stone magazine declared him Performer of the Year. Hedge Clippings was present along with an estimated 600,000 others (in body, if not in mind) when Hendrix topped the bill at the third and last Isle of Wight Festival in 1970, just a few weeks before his untimely death. Personally, we thought the previous year's IOW Festival featuring Bob Dylan was better, although the memory of that event is pretty hazy as well.

Finally, global warming and climate change or just coincidence? This season has seen 7 hurricanes in the North Atlantic so far, making it the second most active season on record, and with forecasters estimating there could be a total of 40 such storms before the season ends, it is likely to top the list. Probably until next year.

For those that understand the significance, the latest one is named Sally! There have been 16 tropical storms named Sally over the years, including one in 1971 that made landfall in Australia.

News & Insights

New Funds on Fundmonitors.com

Video interview with Nicolas Bryon from APSEC Funds Management

Video interview with Matt Williams from Airlie Funds Management

Is There a Bubble in Technology Stocks? by Aitken Investment Management

Hedge Clippings | Friday, 11 September 2020

One can't let the dateline on today's edition of Hedge Clippings pass without remembering that 19 years ago today (now forever simply known as 9/11) a series of four coordinated terrorist attacks shook the world, the most visible of which, captured on the TV news, saw United Airlines Flight 175 follow American Airlines Flight 11, and crash into New York's World Trade Centre. A third aircraft hit the Pentagon, and the fourth, heading towards Washington, crashed into a field after the passengers attempted to overcome the hijackers. Across all four attacks, a total of 2,977 people were killed, and over 25,000 were injured. Approximately 18,000 people are estimated to have since developed illnesses as a result of the toxic dust released from the collapse of the WTC Towers.

The reaction was shock, horror and swift retaliation. The attacks triggered both the war in Afghanistan (starting on October 7, 2001) and later, in March 2003, the invasion of Iraq, both of which have since had a major impact on the world - as intended by the backer and architect-in-chief of 9/11, Osama bin Laden.

It is estimated that from March 2003 to October 2018 between 268,000 and 295,000 people were killed in the Iraq war. Figures for Afghanistan are more difficult to define, but according to this article more than 100,000 Afghans have been killed or wounded since 2009, which is when the UN Assistance Mission in Afghanistan began documenting casualties.

So let's assume 500,000 deaths over 19 years. COVID-19 has killed almost double that (905,000 across the globe, including 194,000 in the US and counting) in less than a year. We are not sure where this leads, or what point we're making, but both are sobering statistics on the anniversary of 9/11 - a date which means little to many millennials, who might not recognise its significance.

Meanwhile, Australia is stalled, and some turkey from the bush wants to distract the NSW government's focus on health, safety and the economy to force an immediate and one-off cabinet meeting to discuss land clearing vs. the protection of the endangered and dwindling koala population.

Did we say turkey? Maybe we mixed our fowls up. Goose.

Changing tack - to markets and fund performance, with the former experiencing some renewed volatility, and a long-awaited pullback following the FOMO rally which began in March. In August the ASX200 Accumulation Index rose 2.83%, still -7.43% below its level at the beginning of the year, and -5.08% below the same time last year.

Drilling down to individual fund performance in August, which whilst good overall was varied - ranging from -5% through to +18%, and with 45% outperforming the ASX200. Over 12 months the range has been extraordinary, from -88% to +79%, with 70% of funds outperforming the index, and 50% with positive returns

Meanwhile, the 300+ Active Equity funds in AFM's database rose by an average of 4.41% in August, are up +0.58% since January, and +5.19% over the past 12 months, for an annual outperformance of over 10.20%.  

As always sound information is therefore vital to informed fund selection and portfolio construction. Given the range of returns above careful analysis more important than ever, when the implications of the right or wrong choice leave the debate about fees a secondary consideration.

News & Insights

There's No Clear Solution to the Problem of Plastics by Nikko Asset Management

Hedge Clippings | Friday, 04 September 2020

We're not sure if it is the combined effects of lockdowns (or in Hedge Clippings' case, "significantly reduced social activity"), overexposure to COVID news (is there anything else happening?) or just the fact that it's already September (and therefore only two months before the Melbourne Cup), but the weeks seem to be just flying past.

Maybe it's a combination of all three, but there seems little difference between one week and the next, particularly for those unfortunate enough to be locked down in Victoria, who this week suffered the insult of having the AFL Grand Final moved to Queensland. What next? Did we mention the Melbourne Cup? Surely not...?

The past week hasn't been all boring however, although we have noted some predictable news items, and some equally predictable comments from various quarters, including three relating to, or by former prime ministers, namely Tony Abbott, Paul Keating and Kevin Rudd. More of that (or them) later.

Two pieces of unsurprising, and predicable economic news this week included the RBA holding interest rates at 0.25%, and the fact that Australia is, after 28 years, officially in a COVID induced recession. Not that anyone would have suspected otherwise, although perhaps some thought the numbers might have been worse. Undoubtedly they would have been without the extraordinary lengths that governments at both Federal and State level have gone to by pumping billions into personal and business support.

As we have noted before, Australia has been fortunate in having a large moat around our island's shores which has limited the health effects of the virus, while effectively going into the economic abyss with virtually no debt, providing the government with the ammunition it required.

From a market perspective it hasn't been all gloom and doom either - depending on which sector one looks at, and hence why the GDP fall was only 7%. With the ASX200 up 38% since its lows in March, and the tech heavy NASDAQ up 67%, there have been some well-documented winners - and losers. Earlier this week we spoke with two fund managers, Dean Fergie from Cyan Investment Management, and Rodney Brott from DS Capital, each of whom have successfully navigated the rebound since March to achieve record monthly returns and, in spite of the market's +38% rise, outperform the ASX200.

Delving deeper, and in spite of both being in lock-down in Melbourne, some common views and themes were apparent - the ability to switch sectors from those such as travel, tourism or commercial property, to areas that have benefited from COVID - tech and communications for example.

You can watch our recording of the Zoom call (recorded yesterday afternoon) with Dean and Rodney here. With today's market down sharply after last night's NASDAQ sell off wiping out the local market's gains in August, their views on investing in quality companies with good economic tailwinds are worth listening to.

To close, back to our reference to former prime ministers. Firstly, Keating and Rudd's call (in Keating's case, "salvo" is probably a better description) that the government shouldn't mess with the planned rise in the SGL, and lambasting the emergency early $20,000 early release opportunity. Normally we'd agree that super should be maintained, and the SGL should increase over time, but these are not normal times.

Messrs. Keating and Rudd as ex PM's and politicians of many years standing are both on highly generous pensions - and the beneficiaries of 15% taxpayer-funded non-contributory super. For those who suddenly had no income, credit card debts attracting 20% interest rates, rent or mortgages to pay, it wasn't so simple. Certainly, they'd be better off in their retirement in 30 years' time, but a bird in the hand.... The point is they have time to recover. Could the scheme have been more tightly controlled or available? Undoubtedly. However, at the time it was also undeniably welcome.

Finally, to that other ex-PM in the news, Tony Abbott, who appears to be a surprise appointment to the UK Board of Trade or whatever. No doubt HRH Prince Philip wrote a reference in return for Tony's equally surprising and generous Knighthood back in 2015. Surprise is probably not the word, with Scotland's First Minister Nicola Sturgeon singularly unimpressed, and calling him out on UK TV.

It didn't take British humourist and Sturgeon impersonator Janey Godley long to give her version of the First Minister's opinion of our onion eating ex PM which you can see here. Although most of Janey's rendition of Nicola's Scottish accent is unintelligible, the odd four letter word is unmistakable, so if that offends please accept our apology, or skip the link!

According to this morning's ABC news, Tony Abbott declined to comment, with a spokesperson advising that he wouldn't comment on "personal abuse". Maybe he's becoming sensitive in his retirement, or maybe he realised that sometimes it's best to keep one's mouth firmly closed.

News & Insights

VIDEO: Interview with Sean Sequeira, CIO at Australian Eagle Asset Management

VIDEO: Interview with Rodney Brott from DS Capital and Dean Fergie from Cyan Investment Management

Time to Move on? Go East? by Delft Partners