This is the last edition of Hedge Clippings for 2014, but rest assured (or should that "be afraid"?) that, barring unforeseen circumstances, we will return in 2015. Although our offices will be closed from Christmas through until 12 January, fund performances on www.fundmonitors.com will continue to be updated, and the phone and emails will be monitored and attended to as required.

Looking back over 2014, and particularly the predictions and forecasts we made last January, we think we got some things right, and hope we got nothing disastrously wrong. However there's no doubt we missed a few significant trends or events. At that time we said that the general view of managers we had spoken to was for a more subdued return from markets in 2014 than in 2013 (which has certainly been the case) but with higher volatility, which with the exception of a few isolated outbreaks, did not eventuate.

We did forecast (correctly) that the Aussie dollar appeared to have further downside potential, but as it had already fallen 16% at that stage, that was probably not too difficult to call. What did surprise us was the stubbornness of the local currency to take the hint from falling commodity prices for a large part of the year.

Our opinion that Australia's economy was likely to see headwinds was correct, although with commodity prices falling further than we had anticipated, we probably also under-estimated the strength of those headwinds. What we also failed to foresee was the difficulties that the government would encounter in the Senate, which were compounded in our opinion by a poorly constructed, or at least poorly marketed, budget.

We suggested that the US recovery would gradually gain pace, and that politicians and policy both locally and overseas would continue to take centre stage. We thought China may or may not avoid a hard or soft landing, which would appear to still be the case, perhaps suggesting that they will manage to avoid the former. Sadly we suggested that the Middle East would continue to hit turbulence, but we certainly could not have envisaged the level of brutality involved.

Having noted the above, there were a few other things we completely missed or managed to forecast. Who would have thought that by the end of the year the price of a barrel of oil would halve, thereby placing significant pressure on the Russian economy, which was of course compounded by the political and military situation in the Ukraine. As noted above we also failed to anticipate the speed at which the new Federal government could lose its political way, thus affecting business confidence, although internally we have divided opinions as to the degree of damage this is doing to consumer confidence.

Of course when looking backwards everything seems relatively clear, but the real challenge will come in January next year when we will gaze once again into our economic crystal ball and try to provide some clarity for the following 12 months. With that in mind we have organised a lunchtime seminar on Thursday February 12 in conjunction with Deloitte entitled "Looking Forward, Looking Back" where a panel of four of the best and brightest fund managers will provide the benefit of their expert opinions. If you haven't already registered, please click here.

Finally this week we have a further video interview with Jack Lowenstein, joint CIO of the Morphic Opportunities Fund discussing his fund and the market's recent performance.

Meanwhile all of us at AFM and Hedge Clippings would like to take this opportunity of wishing you and your families a Happy Christmas and a prosperous and healthy New Year. Stay safe over the holidays, and be kind to each other.

Specific results received this week include the following PERFORMANCE UPDATES:

Bennelong Long Short Equity Fund returned 3.12% in November, outperforming the ASX 200 Accum Index.

The Optimal Australia Absolute Trust returned -0.53% against the ASC 200 Accum Index -3.25% in November with annual returns at 5.41%, and volatility of 2.08%.

Returning 6.14% during November and 15.05% over the prior 12 months Totus Alpha Fund has a volatility of 8.61%.

The Aurora Fortitude Absolute Return Fund returned 0.38% during November and 2.22% for the previous 12 months with a volatility of 1.07%.

In a difficult month for equities the Insync Global Titans Fund returned 5.67%, bringing 12 month returns 12.88% with volatility 8.87%.

The Alpha Beta Asian Fund returned 2.10% during November with annual performance of 6.18% with a volatility of 4.31%.

Chris
CEO, AUSTRALIAN FUND MONITORS

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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

Jack Lowenstein, the Joint CIO of the Morphic Global Opportunities Fund discusses the Fund's performance in November 2014 and condition of the market.

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