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Hedge Clippings | 28 March 2024

Taylor Swift saved the day for February retail sales - or possibly just diverted the consumers' spending away from their normal patterns. Without the one-off impact of 600,000 "Swifties" (including Albo, who took time off from the affairs of State to attend at least one of the seven concerts) the month's retail sales at 0.1% would have only just made it into the positive. Add in the combined effect of concert tickets, clothing, merchandising, accessories, and dining out, and the number nudged up to 0.3%. While some of that would have diverted spending from other outlets and spending, much of the hard earned cash of the Swifties would have left with Taylor herself partly as ticket sales, and partly royalties on clothing and merchandise.

Hedge Clippings - unlike Albo - didn't get swept up in the hysteria, although we have to admit that many years ago there was a phenomenon known as Beatle Mania which did get our attention. Having not heard much of it we can't comment on Taylor's music, but amazingly still remember the words of most Lennon & McCartney numbers from many years ago.

Meanwhile, household wealth data, also released today continued to rise strongly in the December quarter, up 2.8% on the back of strong residential property (+1.2%) and share prices, locally and overseas which added another 1.3% to the total. Monthly CPI came in at 3.4% in the year to February, which is the third flat month in a row, a fact that won't be lost on the RBA when they next meet in May, missing the April meeting under the new schedule. The RBA has been fence sitting for a while (since last November in fact when they increased rates the last time) and they won't be happy until the inflation number shows real progress. That progress may be delayed by recent and upcoming wage increases, plus Stage lll tax cuts due to flow from July.

During the week we had a glimpse into the thinking behind the outcome of November's US election result courtesy of an invitation to Kings Gate Capital's Expert Investor Panel. The logic went thus: Both candidates are clear contenders for their party nomination - although with an outlier that Trump still has some legal and financial hurdles to overcome, and Biden still has to ensure he doesn't stumble and mumble (or worse) too badly before then.

Assuming each overcomes their respective issues, there are two factors which may/will affect the outcome: Firslty ad spend, which Reuters expects to increase by one third over the previous campaign in 2020. Biden is outspending Trump by a significant multiple, and assuming the advertising works - otherwise why would they do it - that will have some effect.

Secondly, and possibly more importantly with voting not being compulsory, will be the voter turn-out numbers - not necessarily the total, but the numbers from each side of the electorate. While Trump has his Republican MAGA followers, who will always support him, there are a group of died-in-the-wool Republicans who, while they'll never vote Democrat, can't bring themselves to vote for Trump.

Equally, Trump's combination of personality and legal issues will encourage normally non-voting Democrats to turn out to vote on the day, even if they're not convinced by Biden's candidature to do so.

Of course that makes Trump the dominant player on the day - just as he'd like it. Unless the outcome is the same as in 2020!

News & Insights

New Funds on FundMonitors.com

Market Update | Australian Secure Capital Fund

February 2024 Performance News

Bennelong Australian Equities Fund

Digital Asset Fund (Digital Opportunities Class)

PURE Resources Fund

Equitable Investors Dragonfly Fund

PURE Income & Growth Fund

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Planting the seed of change: real estate's role in the nature crisis

abrdn

March 2024

Funds operated by this manager:

Aberdeen Standard Actively Hedged International Equities Fund, Aberdeen Standard Asian Opportunities Fund, Aberdeen Standard Australian Small Companies Fund, Aberdeen Standard Emerging Opportunities Fund, Aberdeen Standard Ex-20 Australian Equities Fund (Class A), Aberdeen Standard Focused Sustainable Australian Equity Fund, Aberdeen Standard Fully Hedged International Equities Fund, Aberdeen Standard Global Absolute Return Strategies Fund, Aberdeen Standard Global Corporate Bond Fund, Aberdeen Standard International Equity Fund, Aberdeen Standard Multi Asset Real Return Fund, Aberdeen Standard Multi-Asset Income Fund

Source:

^1. United Nations Environment Programme (March 2022) Managing Transition Risk in Real Estate: Aligning to the Paris Climate Accord. 
^2. Millennium Ecosystem Assessment (2005). Millennium Ecosystem Assessment: Ecosystems and human wellbeing. Biodiversity Synthesis. Washington DC: Island Press.

How to Handle a Correction

Marcus Today

March 2024

It has been one year since the bottom of the market on March 23, 2020. Since then, the ASX 200 is up 65.5%... if you bought at the absolute low and sold a year later.

For any fund manager getting abused for not achieving 54.44% in the post-pandemic recovery year, you might point out to your complaining client that the 54.44% was from the lowest low, which existed for a micro-instant on March 23rd 2020 in the most volatile week in decades. That week the market had a range of 18.9%.

To have achieved 54%, you would have needed not just the the presence of mind (balls) to buy the market at that micro instant low, but you would have had to have done it amidst unprecedented volatility, and you would have had to go in 100% (no cash). And you only had an instant to do it. If you had waited a week and had caught the top in that second week, then the market has only gone up 26.7% in the last 51 weeks, not 54.44%. Half the 51.59%.

Basically, if you missed the bottom of the market by a week and if you had inched in, or pyramided in, not gone all in, you would have lost even more of the gains. There is no one that went in 100% at the bottom.

So just in case you get trolled about your performance, you can ask your investor if they really expected you to go all-in at exactly the right micro-instant.

Truth is, the convenience of hindsight makes it very easy to complain about fund manager performance, and charts extremes are the most fabulous data points for those complaints.

15 Golden Rules From The Pandemic

1. Some of the best bits of the market are the exponential bits ahead of a correction. You have to participate in those exuberant moments or you'll never get the averages, not be too fearful or cautious. Enjoy the exuberant bits. Play the game when it is "on". Laugh all the way to the top. Let the finger-waggers wag, they always do when people make a fortune with little effort.
2. Corrections are inevitable and regular. Expect a big one every ten years (50%), and a tradeable one every three years (10-20%).
3. Corrections come quickly. You don't have much time to react. You have to be decisive.
4. Recoveries come slowly. It's a year from the correction and what we lost in 23 trading days we still haven't recovered. You have plenty of time in the recovery, plenty of time to decide when and what to buy. There's no rush. You never have to catch the knife. The market never crashes up. You do not have to catch the bottom.
5. If you ever say "I can't buy it, it's gone up 10% in a week" you will fail at investment. If you are the sort of investor who says "It's up 100%, I've missed it", you doom yourself to conservatism. Chickens don't make money. You will never buy a ten-bagger. Forget APT up 780% in a year. Eleven stocks in the All Ordinaries have been ten baggers (up over 1,000%) in the last year. 180 stocks (36% of the All Ordinaries index) have doubled, and 290 (58%) are up more than 50%. Percentages are big in a correction and a recovery. Do not be scared of big percentages. You can buy stocks that have gone up, but in a recovery, you have to buy stocks that have gone up.
6. No one knows when corrections are coming and those that did, didn't know for sure, they just made a fuss when they discovered (in hindsight) that they made the right noises at the right time.
7. Do not think you will be so clever as to predict the end before it happens. You can't predict the big sell-offs, just be aware (as now) when some of the ingredients are in place (money printing, excessive debt, rising rates, overvaluation) but don't do anything about the signs of a market correction until the correction begins. We are in the reaction game, not the prediction game. Yes, become more sensitive to the signs the more stupid it gets, but still... wait. And when the precipitous signals turn into a precipitous market, you'll be ready to be decisive.
8. Corrections are great! They are to be welcomed as an opportunity. Do not fear them, welcome them. Best moments in the market, but not if you pull out, stay out, or deny it's happening.
9. No one will ever tell you to sell. No one in the industry wants you in cash. They want you in their fund, in their product; trading, speculating, active. To go to cash through a professional will require you to be assertive. To go to cash as an individual seems like a big decision, but really, it's not.
10. Cash is always king. There is nothing wrong with cash, ever. Even if you get the timing terribly wrong all you miss is "not making money". You can wear that whilst you think. Being in cash is riskless. You have all the power. You can buy tomorrow. Do not be fearful of going to cash. It's no biggie. It's actually very cathartic, especially when things get wild.
11. Catching the bottom of a correction is all about sentiment. When everyone has lost faith in/sight of fundamentals, you need skills reading the herd, not the numbers. Watch the herd, don't join the herd. Look at the tables above, at the best recovery stocks and their PEs and Yields. Warren Buffett could not have picked those stocks on the numbers. Most of the best stocks combined zero yields and were loss-making. Read the herd, not the numbers. Fundamentals are useless when it comes to timing the market. It's why value investors always emphasise the long term, because they are useless in the short term. "It's a weighing machine, not a voting machine" is just an excuse for giving up on timing the market.
12. At extreme moments the market drives all, sinks all boats, lifts all boats. Focus all your attention on identifying the "Pivot Point" in the market. In corrections the woods are on the move, forget the trees until the forest is going up again.
13. Stock selection comes second to the market. After the market pivot point, stock selection is about where you will make the most money, but you have to get the market right first. If you get that right you'll make money in everything.
14. The recovery will come fastest and hardest in the stocks that have suffered the most extreme sentiment swings. In the last year Qantas, Stockland, EDP Education and Virgin were not the stocks with the best fundamentals (far from it), they were stocks that got the most oversold, so rebounded the most. The money is in identifying and timing the extremes of sentiment in stocks as well.
15. Don't bother to buy defensive stocks when the correction starts. Do you remember A2M, FPH, TLS and WOW performing better than the rest of the market when the market fell over? They had a "moment" of outperformance. But in the recovery, they have been some of the worst performers. Defensive stocks will not serve you well at any time. Leave them to the fund managers who concern themselves with their own relative, not actual, performance. For an individual investor, there is almost no point at which you would want to buy a "defensive" stock. They make less money in the recovery and there is no point holding the stock that loses you less money in a correction.

At the end of the day, the pandemic year has been great for us as investors. It has been a year of fabulous opportunities. Hopefully you played the game. Look forward to the next great correction. Hopefully we'll all have the vigilance, experience and courage to exploit it, not run from it.

Author: Marcus Padley

Funds operated by this manager:

Marcus Today Equity Income SMA, Marcus Today Growth SMA

Australian Secure Capital Fund - Market Update

Australian Secure Capital Fund

March 2024

Funds operated by this manager:

ASCF High Yield Fund, ASCF Premium Capital Fund, ASCF Select Income Fund