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31 Jan 2025 - Hedge Clippings | 31 January 2025

By: FundMonitors.com

    

Hedge Clippings | 31 January 2025

This week's December quarter CPI number put a smile on the face of Jim Chalmers as he hit the airwaves to spruik his track record of dropping inflation, while keeping the economy afloat (just) and maintaining strong employment. Of course he was careful to mention that he wasn't trying to influence the independence of the RBA, although that's exactly what he was trying to do, as well as convince voters that he was a safe pair of hands for the next 3 years.

To give him his due, Chalmers is a much more convincing advocate of the government's record than the Prime Minister, even if he is only responsible for Treasury and the economy. Albo continues to huff, puff and fluff, and if things don't go his way at the upcoming election, he might be retiring to his new $4 million beachside pad on the NSW central coast sooner than planned. You never know, that could have been part of his "Plan B" when buying it.

Back to the December annual inflation figures: The figure of 2.4% annually certainly puts it well within the RBA's central band of 2-3%, even though their preferred measure of inflation, trimmed mean, still sat outside that at 3.2%, albeit down from 3.6% in September. Looking through the RBA's board minutes from their December meeting, their considerations for monetary policy would certainly seem to give them room to move on the 18th of February, with the only caveat that the government electricity rebates, which dropped electricity prices by 9.9% in the December quarter, and 25.2% over the past 12 months, are temporary. Be that as it may, the expectations are now well entrenched for a rate cut prior to the election - even if that's just the message Albo and his Treasurer, are desperate to convey.

2024 Fund Performance Tables:

With over 900 managed funds in the fundmonitors.com database, across multiple asset classes, strategies, and peer groups, producing the list of "Top Ten" is always fraught with danger. Assuming funds' performance or returns are the preferred method, then allocation to asset class or peer group is essential to provide an "apples with apples" comparison.

The next issue lies in the time period and track record of the particular fund universe. FundMonitors is as guilty as anyone for providing short term data - either by the month, YTD or over the past year - in spite of clear indications that managed funds should be considered for investing over at least 5 to 7 years. In spite of this at the start of each year, we publish the "Top Ten" list for each category, over the past 12 months.

At the same time every fund, encouraged or as required by ASIC, will issue the warning that past performance is no guarantee of future performance. In spite of this, there isn't an analyst, advisor or investor, who doesn't (or shouldn't) consider each fund's track record before investing.

The tables below, and our analysis, clearly show this when it comes to analysis of each fund's track record, the most recent 12 months performance is not the best predictor of longer term performance - say over 5 or 7 years: Taking Australian equity funds as an example, the top ten funds over one year performed exceptionally well against the ASX200's cumulative return of 11.44%.

Table 1: Top 10 Australian Equity Funds over 1 Year, shown by RETURN over 1, 3, 5 and 7 years if applicable (plus 3 year Sharpe).

However, if we "rank" those 261 funds over multiple periods to dovetail with suggested investment timeframes, 1, and particularly 3 year periods, don't necessarily correlate over all time frames:

Table 2: Top 10 Australian Equity Funds over 1 Year, shown by RANK over 1, 3, 5 and 7 years (plus 3 year Sharpe rank).

It is rare for any fund (but not impossible) to perform consistently in the Top 10 over all time periods and across differing market conditions, but taking the Top 10 over 7 years (in spite of ASIC's warning) shows a much higher correlation over all time periods:

Table 3: Top 10 Australian Equity Funds over 7 Years, shown by RETURN over 1, 3, 5 and 7 years (plus 3 year Sharpe value).

Table 4: Top 10 Australian Equity Funds over 7 Years, shown by RANK over 1, 3, 5 and 7 years (plus 3 year Sharpe rank).

It is important to note that the funds in the 7 year Top 10 list, even if they dropped out of the Top 10 over 1, 3 or 5 years, significantly outperformed their ASX200 Benchmark's return of 11.44%, averaging 29.3% over 1 year.

Fund Monitors' 2024 Annual Top 10 Fund returns and rankings analysis across all asset classes and peer groups will be available next week. To request a copy directly to your email inbox, please email [email protected].


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