NEWS
19 Apr 2024 - Hedge Clippings | 19 April 2024
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Hedge Clippings | 19 April 2024 US Fed Chair Jerome Powell has been walking back - or talking back - expectations for an imminent rate cut in the US for some time now. At the end of last year, market expectations were for the Fed to cut up to six times this year. Following the Fed's March meeting Powell told a Senate committee hearing that they (cuts) were "not far" which resulted in the market expectations being reduced to three. At the beginning of this month, Powell was saying cuts were still likely, but only "at some point". This week he's saying rates can stay at current level "for as long as needed" if higher inflation persists. And it seems it is. Based on the latest US figures, the economy is running well, and as a result annual inflation to March came in at 3.5%, up from 3.2% a month earlier. There's even talk that the next move from the Fed may be up, which would require a major change of view from Powell from just three months ago. Our view has long been that following the spike in inflation post Covid, and then the seemingly quick reversal, the final one to two percent reduction to a hard target of 2% was always going to be difficult, unless of course there was a recession or hard landing. Currently, that hard landing scenario seems unlikely both in the US and locally. Even though March unemployment rose slightly in Australia to 3.8%, it is still a long way from the level Michele Bullock indicated it would need to be to cause an issue. Still at home, Australia's CPI numbers are due next Wednesday and will be crucial to the RBA's thinking. February's seasonally adjusted CPI number year-on-year was 3.7%, up from 3.5% in December, and just as it is in the US, that's heading in the wrong direction. There's a real risk that consumers get used to inflation between 3-4%, possibly just thankful it's half the level it was a year ago. With wage rises well above that in many sectors, along with government largess and generosity, and Stage lll tax cuts just around the corner, the RBA's fear of entrenched inflation of 3-4% is all too real. News & Insights New Funds on FundMonitors.com Manager Insights | 4D Infrastructure Market Commentary | Glenmore Asset Management Investment Perspectives: Aussie interest rates are heading for zero (again) | Quay Global Investors March 2024 Performance News Bennelong Long Short Equity Fund Skerryvore Global Emerging Markets All-Cap Equity Fund Argonaut Natural Resources Fund |
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12 Apr 2024 - Hedge Clippings | 12 April 2024
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Hedge Clippings | 12 April 2024 It was only a couple of months ago that the "market" (i.e. bond traders and economists) was firmly of the opinion that the US Federal Reserve would cut interest rates up to six times this year - starting about now. Fast forward to "now" - actually last Wednesday - and the market views that the cuts, or possibly cut, (singular) won't arrive until much later in the year, possibly not until November. Some - including former US Treasury Secretary Lawrence Summers - warned that the next move might even be up, not down. The cause of this market re-think were the US CPI numbers for the 12 months to March which rose by 3.5% over the past 12 months, up from 3.2% in February, having previously peaked at 9.1% post COVID back in 2022. Excluding volatile items such as food and energy it left core inflation unchanged at 3.8%, but for a market that was hoping for, (but not expecting) a reduction, this was not the news they were looking for. Aside from higher food and fuel prices, the strength of the US economy, and the jobs market in particular, is not helping the Fed's task of cutting rates following their next meeting on the 1st of May. Over 300,000 jobs were added last month in the US, the largest gain in almost a year, against expectations of just 200,000 resulting in a jobless rate of 3.8%. In turn, this cast doubts on the argument that continued high US interest rates of 5.25% to 5.5% would damage the economy. Simply put, it seems that while the Fed is concerned about inflation above 2%, the average consumer is not - or is at least dealing with it, particularly if they have a job, which most do. Much the same logic applies in Australia, albeit the numbers are a little different. December quarter CPI was 4.1%, and on a monthly basis in the 12 months to February it had dropped to 3.4%, although excluding volatile items such as fuel, fruit and vegetables etc., it was higher at 3.9%. Unemployment is low at 3.8%, or seasonally adjusted 3.7%. The RBA's cash rate is at 4.35%, and with some inflationary pressures coming through from recent wage decisions, higher oil prices, and July's Stage lll tax cuts, prospects for a rate cut aren't looking too good. However, looking at the latest Housing Finance figures for February, this doesn't seem to be holding most borrowers back. Year on year, total housing finance rose 13.3%, with investors leading the charge up 21.5%, versus owner occupiers at 9.1%. However, all this is likely to do is confirm, or continue, the chronic housing shortage in Australia, as evidenced by the Building Activity statistics released this week. On an annual trend basis to December the number of total dwellings commenced fell by -15%, and the number completed fell by -2.4%. Meanwhile net overseas migration rose by 518,000 in 2023. As such, that level of increase will keep the economy growing (as it has done for decades), make the RBA's inflation target of 2.5% harder to achieve, and underpin, if not continue, to increase property prices. As in the US, while sections of the media and social services point to high inflation, maybe the average consumer is learning to live with it, and just get on with life. In turn that can lead to entrenched inflation, above the RBA's target, hard to achieve - a situation they're keen to avoid. News & Insights New Funds on FundMonitors.com Fund Monitors | Portfolios March 2024 Performance News Bennelong Australian Equities Fund Delft Partners Global High Conviction Strategy Bennelong Concentrated Australian Equities Fund 4D Global Infrastructure Fund (Unhedged) |
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5 Apr 2024 - Hedge Clippings | 05 April 2024
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Hedge Clippings | 05 April 2024 US Federal Reserve Chairman Jerome Powell pushed back expectations for an early (and multiple) cut to interest rates, saying they're still likely, but only at "some point" this year, saying that "solid growth, a strong but rebalancing labour market, and inflation moving down towards 2 per cent on a sometimes bumpy path" was going to make the timing of an easing - and possibly even the outcome - anything but certain. The same can be said about the timing of a rate cut in Australia, with expectations being pushed out, and the market pricing in only a 10% chance of a move (down) at the RBA's May meeting. The AFR reported this week that the median forecaster in their survey of 39 economists is tipping November before there's a cut, but their expectations have been extended for the past year. News & Insights New Funds on FundMonitors.com 10 cognitive biases that can lead to investment mistakes | Magellan Asset Management |
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28 Mar 2024 - Hedge Clippings | 28 March 2024
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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. 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) |
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22 Mar 2024 - Hedge Clippings | 22 March 2024
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Hedge Clippings | 22 March 2024 While everyone (or nearly everyone) is comfortable that the direction of the next interest rate move is downwards, anyone hoping for clarity on the timing of a cut in Australia would have been disappointed by the RBA's post meeting statement this week. Just take the final paragraph of Michele Bullock's media statement: "While recent data indicates that inflation is easing, it remains high ... it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out ... and will rely upon the data and the evolving assessment of risks. In other words, we a) either don't believe the numbers, or b) don't want to fall into the trap that Philip Lore did, and make any prediction. Over in the US Jerome Powell wasn't much more helpful: While noting that inflation has cooled considerably from its peak, he added, "inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain." "The risks are really two-sided here," Powell said. "We're in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment." In spite of Powell's two-bob-each-way comments, the market took notice of the US Fed's "dot plot" that there would be three movements of 0.25% later in the year. To be fair to the RBA, there are still some known knowns and resulting known unknowns clouding the issue. In July the Stage lll tax cuts take effect, last week aged care workers were (deservedly, in our opinion) awarded wage rises of up to 28%, and there's a risk of flow ons to other sectors as a result. On top of that unemployment unexpectedly fell to 3.7%, in spite of Australia's population growing by 2.5% to September 2023, 83% of which came from net overseas migration totalling 548,800 people. Given housing starts have been inadequate for the past 10 years to cater for the increase in population, that's likely to keep the cost of buying - or renting - a home higher, adding to the inflation pressure. Hedge Clippings has been saying for a while that inflation's "last mile" down from 3.4% to a sustainable 2.5% is going to be a slow process, and the RBA's comments above would seem to bear that out. Meanwhile back to one of our regular, and we have to admit favourite subjects on a Friday afternoon, "The Donald." Trump, who along with his adult sons, is facing somewhat of a liquidity crisis as he battles multiple court cases, ranging from fraud over the value of his New York property empire (bond required of US$355 million, plus interest), through to damages and defamation of E. Jean Carroll following a finding of sexual assault. To give an Australian flavour to the Donald's news feed, this week he gave a little slap to another of our old favourites, ex PM and now ambassador to the US, none other than Kevin '07 Rudd. It turns out that like us, Rudd has been less than complimentary in the past when referring to Trump, who in turn has added our Kevin to his "List" of those he thinks poorly of. The only hope for Kevin is that while Trump is quick to add names to his list, he is equally quick to remove them if it suits the moment. Hedge Clippings has an old (nameless) friend who has also been known to add the names of those who have displeased him over the years to his own list, but unlike Trump, once on, the names very rarely, if ever, are taken off! News & Insights New Funds on FundMonitors.com Fund Monitors | Custom Statistics February 2024 Performance News Emit Capital Climate Finance Equity Fund Skerryvore Global Emerging Markets All-Cap Equity Fund 4D Global Infrastructure Fund (Unhedged) Argonaut Natural Resources Fund Insync Global Quality Equity Fund |
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15 Mar 2024 - Hedge Clippings | 15 March 2024
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Hedge Clippings | 15 March 2024 You can take your pick when it comes to forecasts for inflation in both the US and Australia. The general consensus being that while declining from the levels of 12 months ago, the rate of decline is slowing. The same goes for Europe - according to forecasts from the Federal Planning Bureau in Belgium, (surely the World's centre of bureaucracy and bureaucrats) the average CPI in 2024 should be 3.0%, dropping to 1.8% in 2025, compared to 4.06% in 2023, and 9.59% in 2022. While European inflation has been more severe than either the US or Australia, we live in a global world and the overall trend is likely to be much the same. News & Insights New Funds on FundMonitors.com Wrestling the gorilla | Insync Fund Managers Market Commentary - February | Glenmore Asset Management February 2024 Performance News Bennelong Emerging Companies Fund Glenmore Australian Equities Fund Delft Partners Global High Conviction Strategy Bennelong Twenty20 Australian Equities Fund |
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1 Mar 2024 - Hedge Clippings | 08 March 2024
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Hedge Clippings | 08 March 2024 This week saw a slew of Australian economic data released, including Housing, Labour and Employment numbers, and National Accounts. News & Insights New Funds on FundMonitors.com Social and Regulatory Risks of AI | Magellan Asset Management February 2024 Performance News |
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1 Mar 2024 - Hedge Clippings | 01 March 2024
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Hedge Clippings | 01 March 2024 This week's inflation figures were encouraging, but unlikely to prompt the RBA to change their approach at their next board meeting. Annual inflation stayed steady at 3.4% in the 12 months to January, well down from the peak of 8.2% in December 2022, while the number for underlying inflation, excluding volatile items, dropped fractionally to 4.1%, also well down from its December 2022 peak of 7.2%. We have long held the view that getting inflation down the "last part" to the RBA's target of 2.5% will be the most difficult, and the RBA has been consistent in its guidance that they won't be rushed into cutting rates too soon - at least not until they are convinced the battle has been well and truly won. So while there will be calls from some quarters for a cut sooner rather than later, the RBA is more likely to reverse that, (i.e. later rather than sooner) particularly as the Wage Price Index (WPI) for the December quarter came in at 4.2% - indicating that wages rose faster than inflation. Until the RBA sees the unemployment rate, currently 4.1%, nudge higher they're not going to feel comfortable cutting rates and sending a signal that the inflationary problem is over - even if the actual inflationary cycle has turned. Normally we'd be waiting until the RBA's meeting next Tuesday, but under the board's new structure the normal first Tuesday of the month meeting is now postponed to 18-19th of March, by which time the ABS will have released a slew of data to keep economists busy, with next week seeing National Accounts (including GDP) on Wednesday, and of particular interest to Hedge Clippings, the statistics on the Managed Funds sector due on Thursday. Elsewhere next week our attention will be piqued by Super Tuesday in the USA, when 16 states vote for their preferred Republican and Democratic candidates. Both Joe Biden and Donald Trump would appear to be a shoe-in for their respective party's nominations, with Nikki Haley hanging in there in the hope of a Steven Bradbury like finish if Trump can't overcome his multiple issues with various court cases, and Joe Biden just hoping to hang in there, full stop, or as they say in the USA, period! Both Biden's and Trump's greatest hope for a clear - if not clean - result in November, would seem to be the other's failings. News & Insights New Funds on FundMonitors.com Market Update | Australian Secure Capital Fund Global Matters: Gridlock - the vital role of Australia's transmission infrastructure | 4D Infrastructure January 2024 Performance News Emit Capital Climate Finance Equity Fund Argonaut Natural Resources Fund |
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24 Feb 2024 - Hedge Clippings | 23 February 2024
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Hedge Clippings | 23 February 2024 This week for a change, Hedge Clippings is going to ignore the Reserve Bank, inflation, interest rates, and even politics, as Barnaby's retired to the bush, and Donald Trump has seemingly even gone quiet as he considers his next legal option. Instead, we're reverting to our bread and butter, the performance of markets and managed funds. It's been just over 3 months since the extraordinary rally in equities kicked off last November. At the end of October last year, the ASX200 Absolute Return Index (ARI) was negative (just) YTD since January 2023, and up only 2.95% over 12 months. By the end of December, the index was up 12.4%. Things did slow down somewhat in January, with a return of 1.19%, by which time the 12 month rolling return had fallen to 7.08% thanks to its performance in January 2023 "falling off" the 12 month's numbers. In the small cap sector, the numbers were even more extreme as risk appetite among investors, plus limited liquidity in most stocks in the sector took a toll. At the end of October '23, the ASX Small Ordinaries ARI was down 6.05% YTD, and -5.11% over 12 months. By the end of December, it had risen over 14% to finish the year up 7.82%, before dipping to a 12 month number of +2.09% by the end of January. Small caps of course are notoriously volatile: In September 2022 the index was down 22% over 12 months, but a year earlier, September 2021, the index was up 30.4%, having risen no less than 52% in the 12 months to March '21 in an amazing rebound from the initial depths of COVID in March 2020 of -21% over 12 months. Experienced investors and advisors will correctly point out that when investing in the market, and managed funds in particular, it's the long (term) game that counts. Most offer documents (and ASIC) suggest a 5-7 year term to ride out the swings and roundabouts. Taking that approach, and the long term suggests an 8-9% annualised return (including dividends) from the Australian equity market and 10-12% from global equities based on the MSCI All Countries World Index. Over the same 5-7 year period, managed funds in AFM's Equity Peer Groups - both Large and Small/Mid Cap - have on average largely provided the same returns after fees as the index: The issue of course is volatility, or standard deviation of returns, but as shown below, so is the concept of average. Many will correctly point to the fact that individual stocks and fund's performance varies dramatically and with careful selection, performance can far exceed the above (although passive investing in an index ETF doesn't provide this, but that's a discussion for another day). Of course equities aren't the only game in town, particularly in volatile markets. Over the past 2-3 years, Private & Hybrid Credit funds have proven that they can return the same as equities (8-10% plus) with a fraction (or none) of the volatility, plus a regular income stream paid monthly or quarterly. We're currently preparing our Fixed Income Private Credit Sector Review to shine a light on this emerging, and increasingly popular sector which features a surprisingly diverse range of strategies and underlying assets. News & Insights New Funds on FundMonitors.com Market Commentary - January | Glenmore Asset Management Stock Story: Charter Hall | Airlie Funds Management January 2024 Performance News Glenmore Australian Equities Fund Insync Global Capital Aware Fund Bennelong Emerging Companies Fund |
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16 Feb 2024 - Hedge Clippings | 16 February 2024
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Hedge Clippings | 16 February 2024 Hedge Clippings copped some flak from some quarters recently when we suggested moving Australia Day from the end of January to somewhere nearer the beginning of the month. Our comments were nothing to do with the celebration - or commiserations - that are normally associated with the arrival of the First Fleet, but all about getting workers off the beach, out of the bar, or away from the back-yard barbie and back to work. To put it bluntly, Australia is largely a "no-work" or "no-deal" zone from at least mid-December (and post Cup Day in Melbourne) through to the beginning of February. For the record, Federal politicians leave Canberra at the end of November, not to return until early February. Of course, that generally keeps them out of the news, or in some cases off the streets - Barnaby, please note!
Back to the unemployment numbers, the economy, and inevitably the outlook for interest rates: While employment has been steadily rising (excluding a slight hiccup in the 3rd quarter of 2021) since March 2020 (when all we could think or talk about was COVID), the number of hours worked has been much more volatile, and has been steadily falling since April last year. There are a whole range of statistics around employment - unemployment, underemployment, the participation rate, and employment to population ratio, and even the NAIRU (or 'non accelerating inflation rate of unemployment') - which collectively leave Hedge Clippings with a headache, but the bottom line, according to the ABS, is they "all point to a slowing labour market during 2023-24, although this follows a particularly tight market in 2022-23." This shouldn't upset RBA Governor Michele Bullock, given she was on the record in a speech she gave in June last year while Deputy Governor, saying the RBA was forecasting unemployment to hit 4.5% by late 2024, with employment growth still intact, and (and at that time) inflation returning to target by mid 2025. Under these circumstances, she said, "the economy would be closer to a sustainable balance point." Not wanting to fall into the same ditch as her then boss Philip Lowe had done, she was careful not to make any predictions on interest rates, but did cover herself by adding "Of course these forecasts are subject to a considerable amount of uncertainty." However, at this stage it looks as if she's on track with the employment forecast, and provided she doesn't ease rates too quickly, she may even get inflation back to the 2.5% target by mid (or late) 2025. At her most recent press conference, she sensibly covered all bases on the next move in official rates - possibly up, possibly down (but don't get excited), or (more likely) on hold for a while longer while waiting for more data, all aiming for the happy space of a "soft landing". Across the Pacific in the US it's much the same, as Fed Chair Jerome Powell also disappointed the market by dampening expectations for an early easing, in spite of falling inflation, 3.7% unemployment, and solid economic growth. Having faced, and to date turned, the direction of inflation with 11 rate rises, he'd rather keep them where they are, and things going as they are, until the gains are locked in. News & Insights New Funds on FundMonitors.com Investment Perspectives: Global real estate - the outlook and themes for 2024 | Quay Global Investors A few charts from our Micro Caps CY2024 Overview | Equitable Investors January 2024 Performance News Bennelong Long Short Equity Fund Bennelong Concentrated Australian Equities Fund Insync Global Quality Equity Fund Delft Partners Global High Conviction Strategy |
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