Hedge Clippings | Friday 06 September, 2019
 

"Good start, Boris!" 

Not our quote (unfortunately), but a heckle from across the floor this week as Great Britain's latest Prime Minister lost not just one, but two crucial votes, plunging the country - and potentially Europe with it - into further confusion. What happens now is anyone's guess, although Boris, while understandably angry, didn't seem to take a backward step. Neither did he seem to flinch when his brother resigned from parliament. One gets the impression that Boris isn't phased by much, but he can't even organise the election he wants, unless he possibly moves a vote of no confidence in his own government.

Watching Boris and the debate on the nightly news, or YouTube, would be entertaining if it weren't so sad. What is really interesting is watching the UK speaker, who is possibly more entertaining than Boris himself. To think that it was only a few years ago that our British friends were suggesting that Australian politics were a little tumultuous! It has almost forced Donald off the front pages, although we doubt that will last for long.

But back to reality - if such a state really exists. The debate between proponents of growth vs. value investing continues, even as value seems to be an old fashioned and out of favour concept. In August the ASX200 total return ended a volatile month in negative territory, as did the S&P500, while both still recording a YTD return of over 20% and 18% respectively, with 20% of the funds on AFM's database outperforming the local index both YTD and over 12 months. In the current environment, more than ever, manager research and fund selection becomes vital, as does portfolio diversification.

With the potential for a slowdown to become a recession, investors are understandably thinking of cash as an alternative in spite of concerns over ever lowering cash rates possibly turning negative. In this environment finding a high yielding but risk averse investment becomes even more difficult, but crucial. Our suggestion is that investors ensure they fully understand the underlying investment, and risks, before being lured by advertising headlines of seemingly attractive regular income.

Hedge Clippings | Friday 30 August, 2019
 

Regular readers of Hedge Clippings would no doubt have noticed that we have been erring on the cautious side for some time, particularly when it comes to prevailing interest rates (which seem set to stay low, for longer, or go lower) and the impact of geo-political issues - or at least of powerful political personalities.

Many investors large and small are lamenting the effect that "unrealistically" low interest rates are having on equity valuations, but should be recognising that low to negative interest rates are the new normal and probably here to stay for the foreseeable future. Equally, given the antics of Xi, Trump and now Boris, it is fair to assume that the political risks which currently abound aren't going to dissipate any time soon.

In this environment the ability for central banks to cushion any market shock - or even do anything but keep reducing rates to try to avoid a recession - seems limited, and therein lies the danger. There's no firepower left to adjust to what might lie ahead. And as pointed out by no lesser hedge fund legend than Ray Dalio of Bridgewater Associates, with central banks considering issuing 50 and 100 year bonds, and with $US16 trillion in negative yielding bonds already on issue, the opportunities are limited.

No one, neither central bankers nor legendary fund managers, and certainly not yours truly, have witnessed this before, and there are no certain models or precedents on which to base the potential outcome.

Hence caution. Cash may well be a safe haven. Even at a negative yield.