Ethics as an option?

Dr Simon Longstaff of The Ethics Centre (formerly the St James Ethics Centre) was quoted this week as saying he felt he'd been trying to sell umbrella's in a drought for the past 30 years, but that maybe it is now starting to drizzle.

Hedge Clippings presumes he means that organisations are starting to understand that ethics are important, and as such his wisdom and advice is now being appreciated - in some quarters - at least more than it was.

It is unfortunate of course that this has probably only come about as a result of some failures and the resulting embarrassment in the banking sector in particular, with the media having a field day with the CBA's money laundering, and various examples of market manipulation and rate rigging amongst the other banks. Suffice to say that if the rules on market manipulation in those markets were the same as insider trading in equities, there'd be some significant "holidays" being handed out by the courts, rather than hefty fines being paid by long suffering shareholders.

It is however a sad reflection on the real world of business that the good Doctor Longstaff and The Ethics Centre even exist. Most intelligent and reasonably educated business people - banker or otherwise - know the difference between right and wrong. The problem is they just don't feel the normal ethical rules apply to them, or that the reward is such that they couldn't care anyway.

We long remember the term "Commercially Naïve" being applied to anyone who put ethics ahead of profitability - and it was not meant as a compliment. That Dr Longstaff is now managing to offload a few of his stock of umbrellas is encouraging, but disconcerting that it is only to avoid the recipient getting wet, rather than not needing one in the first place.

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 - October 2017 (pdf format)

A road to nowhere…?

A recent article on the nab asset management website entitled "The Grumpy Australian Consumer" concluded that given the rapid rise in the cost of electricity and health, coupled with subdued income growth and high household debt, Australian consumers are entitled to feel grumpy, and that these pressures can account for the recent retail spending figures as well as the modest performance of the Australian sharemarket in 2017.

The article had a series of excellent charts and tables, the most worrying of which was this one provided by the RBA, and dated March 2017. With household debt having climbed dramatically, and interest payments as a percentage of disposable income having fallen courtesy of low interest rates since 2012, it is not difficult to see the Reserve Bank's dilemma - It won't take much in the way of an increase in interest rates to dramatically increase the percentage of disposable income consumed by mortgage repayments, creating even more grumpy Australians, particularly if consumer confidence remains low.

At least investor confidence has been given a boost recently with the ASX finally touching the 6000 level, albeit still 10% below its all-time high in 2007. TheAustralian market is frequently negatively compared to the S&P500, but it is worth remembering that the ASX delivers Australian shareholders a dividend income of 4%, much of it also having the benefit of franking, whilst US companies distribute just 2.5% to shareholders as dividends.

The NAB article above referred to Leonard Cohen's song Anthem,

"You can add up the parts,

You won't have the sum"

Which is perhaps why we have economists to help us.

In Hedge Clipping's opinion a further reason for Australians to be grumpy, and thus the low levels of consumer confidence, is the lack of direction coming from Canberra, which might be equally summed up by the title of Talking Heads' 1985 hit song "A Road to Nowhere". The title is where the similarity ends, as the words to the song run:

"Well, we know where we're goin'

But we don't know where we've been

And we're not little children, and we know what we want

And the future is certain, give us time to work it out"

Unfortunately, if all the reported talk in Flemington's Birdcage on Derby Day was anything to go by, the words could be changed to:

"Hey, do you know where you're goin'

Do you know where you've been?

And you're not little children, and you should know what we want

And the future's uncertain, you've had time to work it out"

Meanwhile some managers certainly knew where they were going in October, in a strongly rising market.