Hedge Clippings | Friday, 11 September 2020

One can't let the dateline on today's edition of Hedge Clippings pass without remembering that 19 years ago today (now forever simply known as 9/11) a series of four coordinated terrorist attacks shook the world, the most visible of which, captured on the TV news, saw United Airlines Flight 175 follow American Airlines Flight 11, and crash into New York's World Trade Centre. A third aircraft hit the Pentagon, and the fourth, heading towards Washington, crashed into a field after the passengers attempted to overcome the hijackers. Across all four attacks, a total of 2,977 people were killed, and over 25,000 were injured. Approximately 18,000 people are estimated to have since developed illnesses as a result of the toxic dust released from the collapse of the WTC Towers.

The reaction was shock, horror and swift retaliation. The attacks triggered both the war in Afghanistan (starting on October 7, 2001) and later, in March 2003, the invasion of Iraq, both of which have since had a major impact on the world - as intended by the backer and architect-in-chief of 9/11, Osama bin Laden.

It is estimated that from March 2003 to October 2018 between 268,000 and 295,000 people were killed in the Iraq war. Figures for Afghanistan are more difficult to define, but according to this article more than 100,000 Afghans have been killed or wounded since 2009, which is when the UN Assistance Mission in Afghanistan began documenting casualties.

So let's assume 500,000 deaths over 19 years. COVID-19 has killed almost double that (905,000 across the globe, including 194,000 in the US and counting) in less than a year. We are not sure where this leads, or what point we're making, but both are sobering statistics on the anniversary of 9/11 - a date which means little to many millennials, who might not recognise its significance.

Meanwhile, Australia is stalled, and some turkey from the bush wants to distract the NSW government's focus on health, safety and the economy to force an immediate and one-off cabinet meeting to discuss land clearing vs. the protection of the endangered and dwindling koala population.

Did we say turkey? Maybe we mixed our fowls up. Goose.

Changing tack - to markets and fund performance, with the former experiencing some renewed volatility, and a long-awaited pullback following the FOMO rally which began in March. In August the ASX200 Accumulation Index rose 2.83%, still -7.43% below its level at the beginning of the year, and -5.08% below the same time last year.

Drilling down to individual fund performance in August, which whilst good overall was varied - ranging from -5% through to +18%, and with 45% outperforming the ASX200. Over 12 months the range has been extraordinary, from -88% to +79%, with 70% of funds outperforming the index, and 50% with positive returns

Meanwhile, the 300+ Active Equity funds in AFM's database rose by an average of 4.41% in August, are up +0.58% since January, and +5.19% over the past 12 months, for an annual outperformance of over 10.20%.  

As always sound information is therefore vital to informed fund selection and portfolio construction. Given the range of returns above careful analysis more important than ever, when the implications of the right or wrong choice leave the debate about fees a secondary consideration.

News & Insights

There's No Clear Solution to the Problem of Plastics by Nikko Asset Management

Hedge Clippings | Friday, 04 September 2020

We're not sure if it is the combined effects of lockdowns (or in Hedge Clippings' case, "significantly reduced social activity"), overexposure to COVID news (is there anything else happening?) or just the fact that it's already September (and therefore only two months before the Melbourne Cup), but the weeks seem to be just flying past.

Maybe it's a combination of all three, but there seems little difference between one week and the next, particularly for those unfortunate enough to be locked down in Victoria, who this week suffered the insult of having the AFL Grand Final moved to Queensland. What next? Did we mention the Melbourne Cup? Surely not...?

The past week hasn't been all boring however, although we have noted some predictable news items, and some equally predictable comments from various quarters, including three relating to, or by former prime ministers, namely Tony Abbott, Paul Keating and Kevin Rudd. More of that (or them) later.

Two pieces of unsurprising, and predicable economic news this week included the RBA holding interest rates at 0.25%, and the fact that Australia is, after 28 years, officially in a COVID induced recession. Not that anyone would have suspected otherwise, although perhaps some thought the numbers might have been worse. Undoubtedly they would have been without the extraordinary lengths that governments at both Federal and State level have gone to by pumping billions into personal and business support.

As we have noted before, Australia has been fortunate in having a large moat around our island's shores which has limited the health effects of the virus, while effectively going into the economic abyss with virtually no debt, providing the government with the ammunition it required.

From a market perspective it hasn't been all gloom and doom either - depending on which sector one looks at, and hence why the GDP fall was only 7%. With the ASX200 up 38% since its lows in March, and the tech heavy NASDAQ up 67%, there have been some well-documented winners - and losers. Earlier this week we spoke with two fund managers, Dean Fergie from Cyan Investment Management, and Rodney Brott from DS Capital, each of whom have successfully navigated the rebound since March to achieve record monthly returns and, in spite of the market's +38% rise, outperform the ASX200.

Delving deeper, and in spite of both being in lock-down in Melbourne, some common views and themes were apparent - the ability to switch sectors from those such as travel, tourism or commercial property, to areas that have benefited from COVID - tech and communications for example.

You can watch our recording of the Zoom call (recorded yesterday afternoon) with Dean and Rodney here. With today's market down sharply after last night's NASDAQ sell off wiping out the local market's gains in August, their views on investing in quality companies with good economic tailwinds are worth listening to.

To close, back to our reference to former prime ministers. Firstly, Keating and Rudd's call (in Keating's case, "salvo" is probably a better description) that the government shouldn't mess with the planned rise in the SGL, and lambasting the emergency early $20,000 early release opportunity. Normally we'd agree that super should be maintained, and the SGL should increase over time, but these are not normal times.

Messrs. Keating and Rudd as ex PM's and politicians of many years standing are both on highly generous pensions - and the beneficiaries of 15% taxpayer-funded non-contributory super. For those who suddenly had no income, credit card debts attracting 20% interest rates, rent or mortgages to pay, it wasn't so simple. Certainly, they'd be better off in their retirement in 30 years' time, but a bird in the hand.... The point is they have time to recover. Could the scheme have been more tightly controlled or available? Undoubtedly. However, at the time it was also undeniably welcome.

Finally, to that other ex-PM in the news, Tony Abbott, who appears to be a surprise appointment to the UK Board of Trade or whatever. No doubt HRH Prince Philip wrote a reference in return for Tony's equally surprising and generous Knighthood back in 2015. Surprise is probably not the word, with Scotland's First Minister Nicola Sturgeon singularly unimpressed, and calling him out on UK TV.

It didn't take British humourist and Sturgeon impersonator Janey Godley long to give her version of the First Minister's opinion of our onion eating ex PM which you can see here. Although most of Janey's rendition of Nicola's Scottish accent is unintelligible, the odd four letter word is unmistakable, so if that offends please accept our apology, or skip the link!

According to this morning's ABC news, Tony Abbott declined to comment, with a spokesperson advising that he wouldn't comment on "personal abuse". Maybe he's becoming sensitive in his retirement, or maybe he realised that sometimes it's best to keep one's mouth firmly closed.

News & Insights

VIDEO: Interview with Sean Sequeira, CIO at Australian Eagle Asset Management

VIDEO: Interview with Rodney Brott from DS Capital and Dean Fergie from Cyan Investment Management

Time to Move on? Go East? by Delft Partners