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8 Apr 2022 - Hedge Clippings |08 April 2022
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Hedge Clippings | Friday, 08 April 2022
The longer the war in Ukraine continues, so the stakes are rising. Initially expected to be a quick and easy victory, six weeks later it seems an early resolution is unlikely. The Ukrainian's brave, gritty and effective defense, and the Russian's misguided tactics and leadership, have been a revelation to most, as have the horrors of war as Russian atrocities come to light. While the Ukrainians are fighting for their country and their lives, their allies and supporters cannot afford to let them lose. Meanwhile Putin, having miscalculated badly, also can't afford - or at least be seen - to lose. Presumably his face-saving solution is a partial win by occupying and annexing Donetsk and Luhansk (now claimed to be the original intention) to add to Crimea, which was previously annexed in 2014. Even if Russia prevails and actually wins the war, Ukrainians are unlikely to simply submit. A military win would merely be the start of a long, bloody and painful occupation of Ukraine, until the occupying Russian forces eventually withdrew, as they previously did after almost 10 years in Afghanistan. Even in that circumstance, we assume that Europe, the US, and the rest of the civilised countries of the world would continue to isolate Russia economically and culturally. A "partial" victory - even assuming it came to pass - might help to save face for Putin, but whatever the outcome, it is unlikely to end the economic sanctions currently and increasingly being imposed on Russia and its economy. If anything, one assumes (or hopes) the pressure will increase. The problem is that those same sanctions are in turn impacting the nations imposing them, particularly in Europe where they're paying the price for their dependence on Russian energy and resources. In the meantime, Australia's resources sector has been a beneficiary, as evidenced by March returns from funds with appropriate exposure such as Paragon (+23.69%) and Argonaut (+11.6%). Meanwhile the global economy, already facing headwinds from inflation, increasing interest rates, and a potential slow down in China, leads us to ponder the chances of a global recession, and ask the question: "Are equity markets appropriately pricing in the risk?" News & Insights New Funds on FundMonitors.com Quarterly Update & Outlook Webinar (1-Apr) | Laureola Advisors 10k Words - March Edition | Equitable Investors Volatility, Uncertainty, and War | Laureola Advisors Another era of quantitative tightening beckons | Magellan Asset Management |
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March 2022 Performance News AIM Global High Conviction Fund Argonaut Natural Resources Fund Bennelong Kardinia Absolute Return Fund |
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1 Apr 2022 - Hedge Clippings |01 April 2022
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Hedge Clippings | Friday, 01 April 2022
Today being April Fools Day, previously known as All Fools Day, it is fitting that yesterday was (assuming an election in May) the last sitting day of the current Parliament. Rather than try to come up with anything better, Hedge Clippings will defer to Phillip Coorey's column in today's AFR, who opened his piece with "If Anthony Albanese and Scott Morrison are both to be believed, the federal election will not be a battle between two parties with competing visions, but a fight between two lots of clueless old farts." Whilst Hedge Clippings is generally in agreement with the "clueless old farts" reference, the first issue we have is "are both to be believed". Since when did anyone believe anything that both the Prime Minister and Leader of the Opposition say? Or if it comes to that, given the level of cynicism currently prevailing, when did most people believe what either of them said? That's probably true irrespective if it's the PM or OL of the day, although it seems neither of the current incumbents are racing ahead in the polls. In a two horse race, we suppose one of them has to win (or possibly one loses more than the other) - probably with the support of minority parties - although the thought of the likes of Pauline Hanson and Clive Palmer holding the balance of power leaves a lot to be desired. Hedge Clippings originally assumed that Albo was just keeping the seat warm until someone in the Labour party with ability and at least some personality (our bet being Tanya Plibersek) would take over, but lo and behold, he's still in the race. And it seems ScoMo has managed to alienate so many sections of the community over the past couple of years that no one's giving him much chance of pulling off another miracle, come from behind victory. Of course, to some people, NOTHING Scomo does deserves credit. Which is a shame, because on the two big picture items - COVID and the economy - one can argue he's done a pretty good job unless that is you're a Scomo hater. Even if you're a ScoMo fan, it is difficult not to agree (again) with the AFR's post budget headline "Cash splash dash to the polls". Or to argue with the possibly cynical view that Albo's maintaining a small target by basically accepting everything in the Liberal budget, and just tacking on his own additional $2.5 billion cash splash on the politically sensitive aged care sector. Maybe the incredible shrinking Clive Palmer's correct in saying never trust the two major parties again, although when it comes to the trustworthy meter, Clive leaves a little to be desired. Just remember the Queensland Nickel saga, and his elusive (and also shrinking) nephew, Clive Mensink who still seems reluctant to have his day in court. So, if you're not already sick of politicians' promises, all or most of which you know will evaporate in the face of inflation, interest rates, or at the petrol pump, prepare yourself for six or seven weeks of full-on claims, counter claims and expensive advertising. 95% of which will be wasted given it's only the swinging voters (around 5%) who determine the outcome anyway. On a different, and sadder note, Australia and the cricketing world paused this week to remember Shane Keith Warne. Even for those who might not be cricket fans, it was impossible not to admire his talent, exploits, and his charisma, as we watched or listened to the tributes from his father, brother, and three brave children. At 52, gone far too young, he will long be remembered. Even ScoMo and Albo were in agreement on that. News & Insights A tumultuous start to '22! | Insync Fund Managers Do Multiples Matter? | Equitable Investors |
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February 2022 Performance News |
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25 Mar 2022 - Hedge Clippings |25 March 2022
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Hedge Clippings | Friday, 25 March 2022 Exactly one month ago, Vladimir Putin announced that he had made the decision to launch a "special military operation" in eastern Ukraine, with no plans to occupy Ukrainian territory, and that he supported the right of the peoples of Ukraine to self determination. Both of these claims were of course rubbish. As it turns out, it looks as if the Ukrainian resistance is likely to ensure Russia's occupation will fail, and the country's self determination will prevail - both of which have surprised everyone outside Ukraine, Putin included. Exact details are difficult to confirm, but as of 4 hours ago Reuters were reporting "at least 20,000 deaths" including 5 generals - 5,000 more than Russia lost in nearly 10 years in Afghanistan. In a previous edition of Hedge Clippings, we referred to it as the most dangerous situation since WWII, which depending on one's point of view, becomes potentially more dangerous the more unsuccessful that Russia becomes. Unlikely to back down or withdraw, at what stage does Putin escalate by using ever more powerful weapons? If he does so, at what stage will NATO respond, rather than the current strategy of providing arms instead of armies? Meanwhile, after just one month, news of the war (to call it what it really is) has been pushed off the front pages. Page 1 of today's Sydney Morning Herald has nothing other than a pointer to an article on page 13. The conflict doesn't rate a mention on P1 of today's AFR, possibly understandable as it is a financial newspaper, albeit the war's impact on trade, inflation (oil, gas, cereals), etc prevailing. The UK's Telegraph is not much different, more interested in a 5p. reduction of fuel tax. Maybe all this is caused by the incessant 24 hour news cycle, and the inability for the headlines or the latest news bulletin to "carry" a story - or retain readers' and viewers' interest for any length of time. It used to be said that last week's news was tomorrow's fish and chip wrapper, so maybe nothing has changed, except they don't put the news on the Macca's or Hungry Jacks' carton. And it seems that after an initial "risk-off" shakeout, equity markets have moved back to a "risk-on" stance with the ASX200 up 400 points since the first Russian tank rumbled over the border on 24 February, and the S&P500 up a similar amount since mid March. Meanwhile, other risks, such as energy prices, supply chain shortages, a looming election campaign, higher interest rates, inflation, stagflation, and talks of a US recession (induced in part by the war) remain, or have increased. Luckily there was one "good news" story - or at least an uplifting one, in Ash Barty's retirement, literally at the top of her game, aged just 25. We would consider that she has the world at her feet, with suggestions she might even enter politics. Surely she's too sensible (and honest) for that - although teaching some of them to retire while they're ahead would be a welcome move. News & Insights New Funds on FundMonitors.com Manager Insights | ASCF Pet Humanisation Megatrend | Insync Fund Managers Interest rates, bonds and listed real estate | Quay Global Investors The central bank dilemma | Kardinia Capital |
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February 2022 Performance News Delft Partners Global High Conviction Strategy Bennelong Twenty20 Australian Equities Fund |
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18 Mar 2022 - Hedge Clippings |18 March 2022
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Hedge Clippings | Friday, 18 March 2022 Overnight the US Federal Reserve finally bit the bullet and raised interest rates off rock bottom by 0.25% in what is almost certain to be the first step in many back to a normal monetary policy - assuming there is such a level as normal. The move was widely anticipated and in a classic case of "buy the rumour, sell the fact" - or in this case "sell the rumour, buy the fact," - both the Dow Jones and S&P500 jumped 1.23%, Nasdaq did a tad better, rising 1.33%, while the S&P500 VIX fell by 3.75%. News & Insights Manager Insights | DS Capital Investing in infrastructure: what's changed and where are the opportunities? | Magellan Asset Management Australian Equities - At The Crossroads? | Airlie Funds Management Learning from historians as well as from history | Equitable Investors |
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February 2022 Performance News Glenmore Australian Equities Fund Insync Global Capital Aware Fund Equitable Investors Dragonfly Fund Paragon Australian Long Short Fund |
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11 Mar 2022 - Hedge Clippings |11 March 2022
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Hedge Clippings | Friday, 11 March 2022 As Russia's invasion (sorry, "reunification") of Ukraine drags into its third week, it is difficult to imagine Putin pulling his forces back - or out. Any such move in the face of defeat or sanctions would signify such a massive loss of face on his part that it seems unthinkable. As a result, there are not many alternative outcomes, assuming the US and Europe stick to their guns (apologies for the mixed metaphors) and refuse to either implement a no fly zone, or decline to let the Polish lend Ukraine their (Russian built) MIG fighters. In spite of the lopsided numbers, the Ukrainian armed forces, assuming they're not wiped out (or surrender, which seems as unlikely as Putin doing the same) could dig in for a long war of attrition. History shows that these types of conflict are rarely won by the initial aggressor, as Russia knows all too well, having lost 15,000 dead and 35,000 wounded (not to mention an estimated 2 million Afghans) before retreating from their 10 year invasion of Afghanistan. By all accounts, Putin's plans assumed another decisive victory, or a quick Ukrainian capitulation, and although it's still only early days, neither of which seem likely. So a long war of attrition on Europe's doorstep will be accompanied by equally long standing sanctions and the equally damaging economic fallout that will follow. As suggested previously, while Putin's unlikely to back down, and sanctions will be effective over time, but hurt both sides, the leverage that can be put on by the increasingly asset-less Oligarchs, and the mothers of Russian soldiers, are likely to be the solution. Unless of course, Putin decides to up the ante by resorting to his oft threatened nuclear solution, thereby giving the West no option but to get further involved, escalating to goodness knows where. Estimates currently suggest a 10% chance of this outcome within 12 months. To markets: Some investors will reduce their exposure, while some will watch, wait and worry, while others see opportunity in some oversold situations. Meanwhile, on the other side of the Atlantic, it seems almost certain that the sharp spike in inflation - 7.9% and the highest for 40 years - will see an increase in interest rates. Even taking food and energy out of the figures, the annual rate was still 6.4%, and the numbers to the end of February don't factor in the inflationary effects of the recent spike in oil prices. It is safe to assume that even though higher inflation and associated increases in interest rates have been flagged and factored in for some time, when the actual time comes for the announcement - from the US Federal Reserve or our own RBA - the market will react. And given that expectations are for further inflation to flow through the system, the rate increase is unlikely to be the only one, but the first in a series. Closer to home Adviser Ratings has released the results of their survey of financial adviser numbers in Australia, with just 17,266 still in the industry, bringing numbers down by 40% since the Hayne Royal Commission. There are a number of implications from this - one being that it is increasingly difficult for those people who need advice, to find or afford it. At the same time, the alternative of using technology to provide a "robo-solution" can only solve so many problems, given the investors needing the advice may not be suited to a robo solution. At the end of the day, in all walks of life, you tend to get what you pay for. News & Insights The question is, when should you invest? | Insync Fund Managers Markets Volatile; Ukraine Invaded | Laureola Advisors Aligning Interests: (no freeloading on my tab!) | Colins St Asset Management |
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February 2022 Performance News Insync Global Quality Equity Fund Bennelong Long Short Equity Fund Bennelong Emerging Companies Fund |
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4 Mar 2022 - Hedge Clippings |04 March 2022
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Hedge Clippings | Friday, 04 March 2022 To most casual (i.e non expert) observers, particularly tucked well away in the South Pacific, the Russian invasion of Ukraine is remote - or controllable via the remote control of one's TV. As such, while alarming, it is not physically threatening - yet. Not so for one of our UK correspondents, a military man of some 40 years experience, who wrote to us this week that Ukraine is, in his opinion: "More dangerous than Cuban missiles, Czechoslovakia 1968, all the Palestine wars, 9/11, all Afghan wars - the whole lot. NATO is in effect already at war with Russia/Belarus given direct supplies of extensive intelligence and arms to Ukraine. It surely can only be a matter of time before Putin tries to put a stop to that with something aimed just outside Ukraine's borders. And then if one assumes Russia prevails at some point, Russian forces will be arrayed all along the W border of Ukraine, directly facing newly mobilised NATO forces - and only a miracle would prevent some sort of interaction between the two - probably in the air." Which brings us back to the question we posed in Hedge Clippings last week: "Beyond the shorter term outcome of the invasion, the longer term question will be what happens when/if the Russian forces reach the western and northern borders of Ukraine? What, or where next?" We can't see Putin backing down, given he was mad (or possibly as described by his old mate Trump, "smart") enough to think he'd prevail. While the West may not put troops on the ground, providing military support is as close as one can go without pulling the trigger, leaving sanctions as the only solution. To date, and remembering it is early days as yet, the West has been reasonably swift, and generally united, in ramping up at least the rhetoric of sanctions, although they have yet to really bite outside financial markets such as energy prices, the Russian stock exchange or the currency. Our preference remains to put pressure on Putin via the confiscation of the considerable ill-gotten gains, or the cancellation of visas of the Russion oligarchs, whose assets have been on conspicuous display in the UK, Europe, and the high seas for the past 10 to 20 years. Even without such laws being enacted, one can see pre-emptive measures being put in place such as Roman Abramovich's announced sale of Chealsea F.C. This may or may not work, but at least there's a chance Putin will listen to his cronies, because he's certainly not taking any notice of anyone else, either inside Russia or elsewhere. If not, eventually a Claus Von Stauffenberg will step up, albeit hopefully with a more successful outcome. So where does that leave investors in Australia, and specifically in managed funds - which after all is supposed to be the focus of Hedge Clippings? Earlier this week we spoke with Dean Fergie from Cyan Investment Management, who while accepting that this is just the latest in a series of challenges for markets and therefore for fund managers and investors, takes a sanguine and longer term view: In fact he sees the prices of some oversold companies, particularly in the previously overbought tech sector, as an opportunity. Markets and returns over the past few years have created unrealistic expectations in many investors' eyes, but as he reminds us, investing in a well researched diversified portfolio of funds consisting of quality stocks is a long term proposition, not a speculative punt. Of course the key is diversification - a key ingredient in any risk mitigation strategy. Another strategy in risk mitigation is to ensure the portfolio contains uncorrelated assets - or at least those that aren't too highly correlated. This can be easier said than done as in an extreme market sell off, many assets become correlated. At present of course we're not in an extreme market sell off, but gold, long out of favour, is acting as one might expect as negatively correlated to equities. For a view on a completely uncorrelated asset, Damen Purcell this week spoke with John Swallow from Laureola Advisors who invests in Life Settlements, a little known market in Australia, but one worth considering as a pure diversifier. News & Insights Manager Insights | Cyan Investment Management Manager Insights | Laureola Advisors Welcome to the Metaverse | Insync Fund Managers Global Matters: 2022 outlook | 4D Infrastructure |
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February 2022 Performance News AIM Global High Conviction Fund January 2022 Performance News |
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25 Feb 2022 - Hedge Clippings |25 February 2022
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Hedge Clippings | Friday, 25 February 2022 The old saying that "People behave the way they're allowed to" accurately describes Vladimir Putin at the current time. The Russian president/dictator has clearly (and correctly) judged that the likelihood of a military response from the West is nil, and presumably estimates that the political and economic cost of retaliation in the form of sanctions will be worthwhile compared to the benefits of returning Ukraine to the Russian fold. The West has stated it won't put troops on the ground so the military risks themselves seem slight, and to someone of Putin's mentality, are minimal and one-sided. It is down to the economic and strategic damage, with the problem that sanctions are likely to cost the West, and Europe in particular, dearly as well. Meanwhile, history tells us that the Russian people are much more resilient in the face of the economic and physical hardship they endure in everyday life than their "soft" democratic counterparts. Beyond the shorter term outcome of the invasion, the longer term question will be what happens when/if the Russian forces reach the western and northern borders of Ukraine? What, or where next? Meanwhile, President Xi will be watching with interest the rationale that historically Ukraine and many Ukrainians is/are Russian. That sounds much like China's claims on Taiwan, hence it is little wonder there's been no condemnation of the invasion from Beijing. Whilst the world's reaction to Xi following Putin's lead in Taiwan may be even more strident, actually going to war over an invasion is another question altogether. Which leaves sanctions. However, as above, sanctions have a habit of damaging both sides, and given the size and importance of the Chinese economy on the rest of the world, how far might those sanctions be taken, and how effective might they be? Would Australia cease to import Chinese made goods? And if we did, what tolerance would there be amongst a democratic population that would be forced to do without the everyday necessities they're used to? Even more important are our exports, where China represents 43% of our exports by value, slightly more than the combined exports of the next 15 countries on the list. Even if Australia were so indignant at any invasion of Taiwan, would we ban exports of iron ore and coal to China in retaliation, given the hue and cry over China's current ban on rock lobsters and red wine? The West has a problem that totalitarian regimes such as Russia and China don't have, notably open and fair democratic elections. Putin and Xi will behave the way they're allowed to, unless, or until their own populations decide otherwise. Which is unlikely to occur any time soon. News & Insights Intercontinental Exchange | Magellan Asset Management 10k Words - February Edition | Equitable Investors Investment Perspectives: House prices - what's in store for 2022 and beyond | Quay Global Investors |
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January 2022 Performance News Equitable Investors Dragonfly Fund Insync Global Quality Equity Fund |
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18 Feb 2022 - Hedge Clippings |18 February 2022
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Hedge Clippings | Friday, 18 February 2022 The world's a dangerous place, with Russia poised to invade Ukraine, having threatened to do so for some time. Why else would they amass 130,000 troops on the border if they weren't going to step, or fire, over it? For details on all funds: www.fundmonitors.com Mind you, given the ASX200 only returned 9.44% in the 12 months to the end of January, compared with the return of 23.29% for the S&P500, it could be argued it was much "easier" for those funds investing locally to outperform. Only 27% of global equity funds outperformed the respective index. As usual, the numbers re-enforce the value of stock-picking vs. index funds, and of course manager and fund selection, along with appropriate diversification, not only across manager and fund but also strategy, asset class, and geographic mandate. News & Insights Manager Insights | Equitable Investors Manager Insights | Magellan Asset Management |
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January 2022 Performance News Glenmore Australian Equities Fund Insync Global Quality Equity Fund Bennelong Long Short Equity Fund Paragon Australian Long Short Fund |
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11 Feb 2022 - Hedge Clippings |11 February 2022
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Hedge Clippings | Friday, 11 February 2022 Magellan's, and Hamish Douglass's personal issues have been more than well documented in the media over the past couple of months, so there doesn't seem to be much gained by repeating them. The facts are all well known, thanks mainly to the size and success of the business since being established in 2006, and the high profile given to the individual along the way. However, there are some salient lessons to be learned - not only within Magellan, but also by other fund managers, investors, advisors and the industry as a whole, particularly the research houses, ratings agencies and consultants who have been part of the manager's success over the past 15 or so years. Magellan grew to be (and still is) a significant success story both in Australia and globally. It's easy to criticise, particularly for rival fund managers who might have struggled to attract FUM when so much was flowing into their rival, in spite of Magellan's relative underperformance over the last 5 years. To build FUM of $10bn is no mean feat, getting to around $100bn is extraordinary, and reflects not only performance, but outstanding business management and marketing/distribution along the way. Lesson #1: Key person performance is matched by key person risk. However, FUM of that magnitude requires dedicated management, as does listing and running a public company. Whilst Hamish Douglass's ability is undoubted in both areas, there's only so much one person can do, and how far his focus can stretch. Granted, Magellan had (and still has) a depth of management and a talented team beneath the chairman, but the focus was all Douglass externally leading to many thinking he may be wearing too many hats. Lesson #2: Size matters, but small and nimble has its benefits. Next, size. We have frequently shown that as FUM grows the ability to outperform one's smaller peers can become more difficult. Add in a series of concentrated portfolios - for instance the High Conviction Fund has exposure to just 8-12 stocks, while the larger Global fund has 20-40 stocks, which is still concentrated. A combination of size and concentration limits opportunity, and creates issues when or if the position, or the market turns against you. Size, or FUM, creates other imbalances. The benefit of size is that it opens the door to institutional mandates, not available to smaller managers due to the investors own concentration limits. As seen with Magellan, this can create business risk in the event that a major institution redeems. Lesson #3: Performance is more important than personality. We have often quoted Harold Geneen's "words are words and promises are promises, but only performance is reality". The Magellan Global Fund has returned just short of 14% per annum over the last 5 years which is a solid result, but the fund has underperformed relative to the market and many peers. However, the aura of Hamish, and his ability to hold an audience, is legendary, and the reputation of Magellan itself carried great weight with both investors, advisers, consultants and research houses. There used to be a saying in the early days of IT that "no one ever got fired for buying IBM". In the same way, an allocation to Magellan has been a safe option. The due diligence had been done by the rest of the market, so easier to go with the flow. That allowed the recent relative underperformance to be ignored, or at least not given the level of scrutiny by the gatekeepers and so called experts whose job it was to know and act accordingly. However, for a mere analyst within a ratings house, calling out that underperformance, or for that matter the key person risk involved in a star fund manager and consummate media performer, could be a brave, and possibly career defining act. Unless of course the proverbial has hit the fan and everyone's saying the same thing, and it's daily news in the financial press... Adjusting your research rating AFTER the event is akin to closing the gate after the horse has bolted, but don't get us started on the potential conflicts of interest involved in the fund manager paying for the ratings they receive. Lesson #4: Do your own research, and above all else, diversify. Not everyone has the knowledge or skill to fully analyse a fund's performance numbers, risk factors and KPI's, but there's enough core information available to all users of www.fundmonitors.com (no apologies for the plug) to be able to compare, measure, rank and make good decisions as a result. Forget the names and reputations for moment, do the numbers, and then diversify across strategy, asset class, manager and fund - allowing for the fact that Magellan might well remain part of that diversification. News & Insights Global Strategy Update | Magellan Asset Management With so much going on, where should your focus be? | Insync Fund Managers |
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January 2022 Performance News Bennelong Concentrated Australian Equities Fund L1 Capital Long Short Fund (Monthly Class) |
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4 Feb 2022 - Hedge Clippings |04 February 2022
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