Monthly Report – January 2017
It feels like so much has happened since my last report - Donald Trump was elected, inaugurated and has started ruling the world via tweets. Well, he's trying to at least, even if a few pesky judges are telling him that he might not get it all his own way. And so has a Prime Minister we all know well apparently. It would seem that, since that phone call, a few other national leaders (UK, Germany, Japan and Canada) have all quietly explained why world trade is good, and all the benefits that the US gets out of those supposedly "unfair" trade deals. Did someone say it's like dealing with a child?
After the post US election euphoria of December then, markets settled a little in January with the Australia ASX200 Index down less than 1% to 5621, and international markets down around 2%. The big movement through the month though was the Australian dollar shifting from around $US0.72c back to $US0.75.5c This was a reversal of the drop that happened straight after the US election, on the thought that Trumponomics would be bad for Australia. That, and some news that indicated Australian interest rates may have actually hit the bottom at 1.5%, so the next move is up. Traditionally it has been a combination of interest rate expectations and commodity prices that have driven the Australian dollar, but in the last few months, the strongly rising iron ore price seems to have had little impact.
You may have noticed that many commentators are now offering divergent, or opposing views on what happens next. Is Trump good or bad for markets, the US dollar etc. Will trade barriers increase, or will Trump quietly move on to other measures that can win popular US voter support such as tax cuts? Usually, when there are strongly divergent opinions in the market place, the markets slowly move upwards. That is because there is no excessive enthusiasm, nor excess fear. Fundamentals take over.
Interestingly, our funds are currently showing extremely high returns for the last twelve months to January 31st. Some of that is to do with the markets being down 12 months ago, and so numerically we've just recovered some of last year's dip.
Part of the result though is real outperformance by the RealIndex funds. The RealIndex Australian Share fund has outperformed the ASX 200 Accumulation fund by 7.51% over the last 12 months, earning 24.85% vs 17.34%. The RealIndex Global Share Hedged fund outperformed the MSCI World index by 6.15% (24.35% vs 18.20)* and the RealIndex Small Companies fund outperformed by a whopping 15.45% (31.80% vs 16.35%). Much of this result had to do with the fact that resource companies around the world were out of favour 12 months ago, despite the fundamentals being sound. The RealIndex process meant that a reasonable exposure to resources was maintained despite the naysayers. That position is currently paying dividends. As is usually the case, we would recommend making sure that some rebalancing is done to capture those profits and lock them.
* Just a small amount of flag waving on the RealIndex Global Share Hedged Fund - its sister fund, the RealIndex Global Share Fund, returned a healthy 16.49% for the year but the Hedged Fund that most clients moved into earned 24.35%! If you want more info on the RealIndex process, you can find it here;