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Printed: 01 December 2023 7:45 AM


20 Jan 2023 - Hedge Clippings |20 January 2023



Hedge Clippings | Friday, 20 January 2023

Welcome to the first edition of Hedge Clippings for 2023.

Firstly, good riddance to 2022, which for most investors and the majority of fund managers was a year they'd happily forget.

The cause of most of the damage was the sharp increase in interest rates, triggered in turn by an outbreak of inflation, as noted by L1 Capital in their December performance report:

"The dominant theme of the year was the surge in inflation, which reached 40-year highs in the U.S., driven primarily by extreme fiscal and monetary stimulus implemented in 2020 and 2021... The Fed responded with the most aggressive interest rate hiking cycle seen since 1981. Over the year, the Fed raised interest rates by 425bps relative to market expectations of only 75bps at the start of 2022."

The last sentence reveals why so many funds struggled in 2022. No one expected an inflationary break out, thus market expectations - including those of central banks - for rates rises were subdued, to say the least. Throw in the unexpected invasion of Ukraine in February, plus turmoil in China, and it's easy to see why only 29% of the 700+ funds in the FundMonitors database, (including the above mentioned L1 Capital's Global Long Short Fund which returned 9.8%) provided positive returns for the year, and less than a quarter of all equity funds managed to outperform the ASX 200 Accumulation Index.

Put bluntly, central banks, including our own RBA, and economists were caught looking in the wrong direction, and thus fund managers had to readjust to the new environment, which by the last quarter of the year many had managed to do. The ASX fared better than most global markets, falling 1.08% on an accumulation basis, while the S&P500 was down 18%, and the NASDAQ fell 33%. Unusually in times of equity market turmoil, bond markets didn't provide a safe haven.

Looking forward, it seems inflation, while still a major issue, may have peaked in the last quarter of 2022, particularly in the US where it dropped to 6.45% in December, down from 9.06% in June. Meanwhile, in the UK the December annual inflation figure was 10.5%, down slightly from 10.7% the previous month. That may allow central banks to ease off on further rate rises, but we are unlikely to see rates fall until much later in the year, by which time the looming recession will have been confirmed.

So while the path ahead is not going to be easy, and is still uncertain, hopefully, there are less unknowns: The war in Ukraine will drag on, and hopefully not escalate further. China remains a 50/50 bet, although a far cry from the economic and political juggernaut it seemed to be a couple of years ago. COVID, whilst remaining a threat thankfully seems to be receding or at least becoming more manageable.

Of course, thinking that the bad news is already out there is dangerous - the unexpected is always just around the corner. But compared to this time last year, surely markets are more prepared for what might lie ahead?

News & Insights

Market Commentary | Glenmore Asset Management

Market Update | Australian Secure Capital Fund

December 2022 Performance News

Glenmore Australian Equities Fund

Argonaut Natural Resources Fund

4D Global Infrastructure Fund (Unhedged)

Insync Global Quality Equity Fund

Bennelong Long Short Equity Fund

Quay Global Real Estate Fund (Unhedged)

Digital Asset Fund (Digital Opportunities Class)

ASCF High Yield Fund

L1 Capital Long Short Fund (Monthly Class

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