This is our last "Hedge Clippings" for the year.  Thank you for your support and feedback over 2018, we hope our various Friday afternoon musings have been to your liking - or at least if not, of interest.  We'll be back after the break, but in the meantime would like to take this opportunity of wishing you and your families a Happy Christmas and a Healthy and Prosperous New Year.

Looking back it was a year when the music stopped on a number of fronts - although it had been becoming pretty discordant for some time. It's been a year when geopolitics has been the dominant theme - or themes, with markets and economists trying to work out what's next, and getting the wobbles in the process:

Brexit - David Cameron will be remembered for making an offer he didn't need to, and giving 36% of the UK electorate control over an outcome he didn't want. It was always going to be ugly, but it has turned out to be a disaster where no one is likely to be happy with whatever the eventual outcome holds. What on earth was he thinking?  The truth is he probably wasn't, so he neatly sidestepped his responsibility, leaving it to his stoic but hapless successor to sort out the mess he created.

Trump - Where do you start?  The Donald seems immune to any kind of advice or what one might call statesmanlike behaviour. He thrives on confrontation and apportioning blame and responsibility for his mistakes to others - aides, Chiefs of Staff, Lawyers - and even the Federal Reserve.  He has certainly achieved certain gaols - to what extent they'll be of the own goal variety (or maybe that should be in goal?) remain to be seen.

China - The music hasn't stopped but it is getting louder! The Chinese Communist Party finally seems to be being held to account for wanting to dominate the world's economy, and is not liking the pushback it is receiving from the incumbents.

Australia - A combination of the Hayne Royal Commission, and the revolving door at the Lodge are threatening what's been a record economic run. The HRC has helped to put the skids under an overly heated residential property market - something the Reserve Bank had been trying to do more subtlety for a while. Either way the above combinations - along with the strong chance of a change of government next year - are likely to see consumer confidence erode further, with the risk that the economic record comes to an end.

The music may not have stopped, but the tune will have changed significantly.

BENNELONG KARDINIA ABSOLUTE RETURN FUND

Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile.

• The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with over ten-year track record. 

• The Fund has significantly outperformed the ASX200 Accumulation Index since its inception in May 2006 and also has significantly lower risk KPIs. The Fund has an annualised return of 9.31% p.a. with a volatility of 7.14%, compared to the ASX200 Accumulation's return of 5.14% p.a. with a volatility of 13.36%.

• The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while Bennelong Funds Management provide infrastructure, operational, compliance and distribution capabilities.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - November 2018 (pdf format)

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.

• The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large-caps from the ASX/S&P100 Index, with over 15-years' track record and an annualised returns of over 15.5%.

• The consistent returns across the investment history indicate the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market. The Fund's Sharpe Ratio and Sortino Ratio are 0.92 and 1.50 respectively.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - November 2018 (pdf format)

BENNELONG TWENTY20 AUSTRALIAN EQUITIES FUND

Attached is our most recently updated Fund Review on the Bennelong Twenty20 Australian Equities Fund.

• The Bennelong Twenty20 Australian Equities Fund invests in ASX listed stocks, combining an indexed position in the Top 20 stocks with an actively managed portfolio of stocks outside the Top 20. Construction of the ex-top 20 portfolio is fundamental, bottom-up, core investment style, biased to quality stocks, with a structured risk management approach.

• Mark East, the Fund's Chief Investment Officer, and Keith Kwang, Director of Quantitative Research have over 50 years combined market experience. Bennelong Funds Management (BFM) provides the investment manager, Bennelong Australian Equity Partners (BAEP) with infrastructure, operational, compliance and distribution services.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - November 2018 (pdf format)

There's not much good news around to welcome Santa!

Nearly every economist got this week's GDP figures for the September quarter wrong (+0.3% and 2.8% YoY). Now there's speculation that the R word will be back on the agenda. And if not a Recession, then possibly a slowdown, and rate cuts down the track from the RBA if the December quarter figures are equally disappointing. That's a big turnaround in expectations, even if most experts weren't expecting an upward movement in rates any time soon.

Anecdotally, based on going to a department store earlier this week, and worse still, a shopping mall, (which Hedge Clippings generally tries to avoid like the plague unless absolutely necessary) there doesn't seem to be much Christmas cheer running through retailers' cash registers. Maybe consumers are all shopping online, maybe they're waiting until the last moment (like yours truly), but quite possibly they're just pulling their heads in.

Why?  Because as noted above, there's not much good news around unless you're an extreme, and possibly unrealistic optimist!

• As recently as May this year one of the (so called) expert real estate commentators downgraded their 2018 housing price forecast on a weighted capital city basis to between -2% to +2%. Fast forward just 6 months and with the property market down 10% they're realising a further 10% fall is not out of the question as banks pull their heads (sorry, lending criteria) in and faith in the financial markets has been tested by the exposure of the Hayne Royal Commission on the front pages and TV nightly news.

• Irrespective of one's political preferences there's a general lack of confidence in our glorious pollies, and an election, and a change in government is just around the corner.

• Globally the Trump / China spat is far from resolved, creating uncertainty in US markets. Brexit is uncertainty personified, and even the German economy - not long ago the envy of the world - is suffering.

• In the US, 10 year bond yields, having recently threatened to rise above 3.5% and spoil the equity market's party, are now threatening to fall below 3% based on concerns about a US slowdown in 2019.  The yield curve is close to inverting as 10 and 2 year bond rates are dangerously close to each other.

• Every US recession for more than half a century has been preceded by an inversion of the curve, although to be accurate not every inversion has been succeeded by a recession.

Could the unthinkable - an end to Australia's record growth run - happen? Hopefully not, but there are enough signs, and opinions pointing in that direction, that it would be unwise to rule it out completely.