We might apologize for being boring, but the budget shouldn't be!

Each Friday the Hedge Clippings team cast their collective minds over the economic activity of the previous seven days, taking note when we can of happenings relevant to the absolute return and hedge fund sector. Uppermost in our thinking is trying to remain relevant and informative while trying not to bore the socks off our readers, not to mention ourselves, at the same time.

You might think we shouldn't be so indulgent as to worry about whether we're the ones bored or not, but it does concern us. Given that there's been an unrelenting theme of QE, central bank intervention, and low and falling interest rates across financial markets for so long now, it's been difficult to avoid being boring, as we're sure you might have noticed.

The net result of the these conditions has been, as we've mentioned before, the rise of the TINA, or There Is No Alternative, investment strategy that has seen equity market valuations pushed and stretched to dangerous levels as noted this week by no less than US Fed head honcho, Janet Yellen.

It is ironic therefore that at a time when the RBA reduced rates by a further 25 bps to an unheralded 2%, 10 year bond yields both in Australia and overseas start to rise, and rise quite sharply, with the result that equity markets, and particularly the high yielding banks, retreated sharply.

For the record the ASX 200 Accumulation Index fell 1.7% in April (compared with early indications of equity-based hedge funds rising 0.52%) and has fallen a further 2.5% since, including the largest one-day fall for a couple of years.

Whether this was the start of a much anticipated pullback, or just a pause remains to be seen, but it was certainly an indication of what could, or should happen in response to rising bond yields.

And while on the subject of boring, PM Tony Abbott has promised Australia a boring budget next week. For his part it might be wishful thinking, hoping perhaps that the electoral response to Joe Hockey's second budget will be boring, unlike last year's. Unfortunately a boring budget is not what is required, and it is gratifying to see that there is an increasingly widespread opinion that long-term vision and strong management, rather than pandering to interest groups and personal political survival, are what's required.

Specific results received this week include the following LATEST PERFORMANCE UPDATES:

Alpha Beta Asian Fund generated a return of -1.16% during March, to bring the Fund's annual return since inception to 6.77% p.a.

Signature Quantitative Fund 2.80% for March, to bring the annual performance since inception to 15.99%.

The KIS Asia Long Short Fund returned of2.59% during March, bringing the Fund's annual return since inception to 14.91% p.a

Supervised High Yield Fund rose 0.45% during March to bring the Fund's annual return since inception to 10.23%. In the same time frame the RBA Cash Rate returned 3.49%.

Chris
CEO,AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund AFM Fund Review March 2015 (pdf format)

23 out of 27 Economists can't be wrong - could they?

The Aussie dollar's brief resurgence above 80 US cents this week would not have pleased the RBA governor Glenn Stevens. Or maybe it would have pleased him, given that he will have one more justification to cut rates at the bank's next board meeting.

He is not alone in thinking that the A$ is too high, and it seems that 23 out of 27 economists surveyed by Bloomberg this week (that's an increase of one since the previous survey) are of the view that a 25 bps cut to just 2% is in store at 2:30 on Tuesday. The consensus is that the only thing preventing the rate cut is the red-hot property market, particularly in Sydney, where the median house price is now over $900,000.

That is over 12 times the annual average full time wage of $74,724 so no wonder there is concern over housing affordability. Granted there are regional differences both in property prices and wages, but housing prices in Sydney have risen 16% over the past 12 months to the point where just over 35% of a Sydneysider's income is spent on mortgage repayments.

Other statistics this week indicated that a significant proportion of the housing push, particularly in Sydney, is coming from overseas buyers, particularly from Asia. The reality of course is that overseas buyers have been pushing the price of real estate up in Australia, since the First Fleet landed in 1788 with only the occasional pause for a recession, and there hasn't been one of those for close to 20 years.

However it does mean that for a significant portion of the population the great Aussie dream of a house on a quarter acre block will remain just that - a dream.

While most of the focus on the effect of a rate cut next week will be on housing affordability and mortgage rates, spare a thought for the number of people dependent on term deposits for their income. As Philip Carden from the Supervised High Yield Fund pointed out this week, the current one-year bank term deposit is 2.65%, and one can safely assume that that will fall below 2.5% if or when the RBA moves. Meanwhile ten-year Australian Treasury Bonds are already yielding less than this at 2.25%.

With the current debate over superannuation and concerns about "wealthy" retirees with million-dollar lump-sum payouts, consider that the income on $1 million in the bank doesn't provide income equivalent to the aged pension.

Therein lies part of the Treasurer's challenge when he hands down his second budget in a couple of week's time. Joe Hockey and the government are between a rock and a hard place, albeit much of their own making given they failed to grasp the nettle this time last year.

Specific results received this week include the following MARCH PERFORMANCE UPDATES:

Allard Investment Fund increased 0.90% during March, to bring the Fund's last twelve month performance to 25.22%.

Over the quarter to the end of March, Cor Capital Fund returned 4.20%, bringing the Fund's 12-month return to 7.70%.

The Insync Global Titans Fund decreased 0.50% in March bringing the Fund's prior 12 month performance to 18.55%.

The Paragon Fund  returned 2.10% (ASX 200 Accum -0.09%). The Fund's annual return since inception has been 21.54% p.a. versus the Index's 11.95% p.a. 

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter

• The Aurora Fortitude Absolute Return Fund  (AFARF) has a 10 year track record investing in ASX listed equities. A Market Neutral overlay is used across a multi strategy approach which allows for flexible asset allocation to maximise returns and minimise risk under a variety of market conditions and cycles.CIO John Corr has over 20 years financial market experience with a strong focus on risk.

• Significant use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. Risk statistics are impressive and shows the Funds risk philosophy; over 85% of monthly performances have been positive with no losing months in 2008, the Fund's largest drawdown is -2.09% and the Sharpe ratio 1.06.

• ASX listed Aurora Funds Limited was established on the merger of three existing fund management businesses, managing approx. $230m on behalf of more than 2,500 retail and wholesale investors.

ATTACHED FILESAurora Fortitude Absolute Return Fund Fund Review March 2015 (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities Fund February 2015 (pdf format)