Hedge Clippings | Friday 15 November, 2019

As indicated last week, this edition of Hedge Clippings comes to you from London. From the outset we'll seek forgiveness for typos, or ramblings over and above the norm, which we will put down to the effects of jet lag. It is irrelevant which end of the plane you are in, 24 hours cooped up with 450 others in a noisy tube and an 11 hour time difference at the other end is no fun.

Hedge Clippings has yet to establish the best routine to handle long distance flights. One school of thought is the David Boon approach: Stay awake, if barely conscious, while consuming as much alcohol as possible. That certainly makes the flight more bearable, simply because by the time one is flying over Darwin the senses become, shall we say, "dulled".

Alternatively, take the airline's good advice; drink plenty of water, avoid alcohol, and put up with the discomfort, bored out of your tree. And try to resist the atrocious food, which in any other environment you wouldn't feed your dog. We're now of the opinion that the onboard food is as bad for jet lag as the booze. Hedge Clippings' solution: Stay hungry, both during the flight and post arrival, and if you can find such a thing in London, hit the (good) caffeine.

But we digress. There's an election in the UK in less than a month, and the outcome will determine Britain's future for some time to come - if not forever. We had thought the result could go either way given the variables at stake, but based on a very small survey, the feedback is for a Boris victory.

Firstly, a couple in their 60's who voted to remain in the referendum, along with their children. Wind forward three years and they're sick of the whole thing and just want to get on with it, as do, less enthusiastically, their children.

Next, a more analytical view following a meeting with Chris Watling of Longview Economics, who in their usual fashion have numerically quantified their forecast result - namely that Jeremy Corbyn's Labour is committing political Hari Kari, and that Boris Johnson, having hit the ground stumbling, is likely to end up with a likely majority of 60 to 90 seats - if not more.

Longview's senior market strategist, Harry Colvin, goes on to conclude that "that outcome should crystallise certainty in markets around (i) the shape of Brexit, and (ii) business friendly government policies.  

There are reasons given for their view, with extensive and detailed analysis as usual, including no compulsory voting, and the UK's "first past the post" system. Not to mention that it seems Jeremy Corbyn's extreme socialist views are a step (or ten) too far to the left, akin to him committing political Hari Kari.

If you're into the minutiae of UK politics, Longview's definitely worth a week-end read.

Hedge Clippings | Friday 01 November, 2019

An article today on Financial Standard quoting Rainmaker data reports only 10% of Australian Large Cap equity funds outperformed the market in the 12 months to 30 June.

Aside from the fact that the information is a little out of date (see chart below for AFM distribution of returns data to the end of September - all funds all strategies), large-cap equities is a hard space to significantly outperform, particularly in the current environment. Large cap stocks dominate the market and drive its overall return. There are numerically more opportunities OUTSIDE the ASX Top 20 or Top 50 or even the Top 200 even though their volatility might be higher. And outside the Top 200 companies are flying well beneath broker's research and with significantly higher growth opportunities.

AFM's data above shows around 20% of all funds outperformed the ASX accumulation index's 19.29% return over the past 12 months. It's worth remembering that 19% is a pretty impressive return as well - nice to have, but investors can't expect that every year. However, as we're never tired of pointing out, that's an average, and averages mask the real outperformers - and the underperformers.

Moving on to underperformers of a different kind, Bill Shorten was well and truly outed this week - although for most people it didn't require an internal review by the Labor party to work out why he lost the unlosable election. No doubt complacency came into it, but the internal review seemed to spare former shadow Treasurer Bowen for his franking credit policy - and gaffe of telling voters if they didn't like it, vote elsewhere. Labor alienated key sections of the community, many of them committed Labor voters, but particularly retirees, and in Queensland, miners.

Hedge Clippings is heading to London next week, not necessarily to get a first-hand view of the Johnson/Corbyn election battle, although it will be useful to gauge the mood, albeit briefly. Of more interest will be the mood of the managed fund sector, and the potential impact of Brexit, or the possibility of a truly socialist government in the UK to boot. Given that voting is not compulsory, and with winter approaching, one would think the weather could have a significant impact on the outcome of a December 12 poll, as could the impact of dissatisfied voters moving to the minor parties.