Hedge Clippings | Friday, 01 July 2022
A week may be a long time in politics, and in financial markets there's an old saying that "time in the market" is important, but at the end of the day what matters to investors are returns. More relevant at the current time are lack of returns, given the S&P 500 fell just over 20% in the six months to June, down from its record peak in January. Bonds in the US have followed suit, down 10% this year, so diversification hasn't helped.
Meanwhile, Bitcoin has dropped almost 50% since January, and is now trading at less than a third of its peak last year. Again, so much for diversification, and a rude lesson for those investors who failed to recognise the degree to which leverage was driving cryptocurrencies.
The CBA this week hiked fixed term mortgage rates by 1.4%, taking them to between 5 and 6%, a shock for those who thought the low interest rate, easy money party would last forever, but probably still an attractive number for those who can remember variable mortgage rates of 18% back in the day. As a result, and with further increases from the RBA a certainty, residential property is liable to end up being correlated to equities and bonds as well.
As we've noted previously, every irrational market - whether equities driven by unrealistic earnings expectations or multiples, residential property, interest rates, or crypto - invariably ends in a reversal to more realistic levels.
As far as performance of the funds on the FundMonitors.com database (now numbering over 700) it's too soon to have numbers for June, and therefore the six or 12 months to the end of the 2022 financial year. However it is pretty safe to say the range between the best and worst strategies, and the funds within them, will be extensive. As of the end of May, 58% of funds had positive 12 month returns, a figure that dropped to 25% in the 5 months calendar YTD. 45% of equity based funds outperformed the 12 month performance of 4.84% achieved by the ASX 200 total return, a number which again dropped to 25% outperforming since January, when the ASX200 fell -1.27%.
Strategy-wise, alternatives rise to the top in these times of market turbulence, with an average return of 10.62% over the 12 months to the end of May. However, alternatives cover a diverse range or bucket, and are often either misunderstood, or relatively unknown. Check out our Peer Group comparisons here.
As always, careful research, diversification and realistic expectations are essential.
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