Fancy Funds Full of Fluff

Market Wrap

Believe it or not, the Trade War dominated markets this week! Markets surged mid-week after reports that there will be another round of trade negotiations in October, to which this Twitter user posed a valid question.

trade war

The chart below succinctly summarises how markets have behaved for the last year or so.

trade war

In local news, the Australian economy grew 1.4% over the last year, the weakest growth rate since the GFC. Although this may sound scary, it is unlikely that Australia will slip into recession. The Reserve Bank of Australia and the Federal Government are hell bent on kicking the can down the road with lower interest rates and fiscal stimulus, despite a decade of evidence suggesting that these measures provide little more than sugar hits whilst reducing the tools at their disposal when an actual economic crisis comes about!

Beware The Fancy Funds

On the subject of exotic investment strategies, we recently rediscovered a gem of a video from the British equivalent of Clarke and Dawe, detailng how the GFC came about as a result of Wall St packaging a bunch of dodgy mortgages together and marketing them with impressive names such as the Bear Sterns High-Grade Structured Credit Enhanced Leverage fund.

This is fantastic satire because investors actually fall for these marketing gimmicks. There is research that suggests that hedge funds with powerful words in their names tend to attract more investors. They also tend to have lower returns, larger drawdowns and higher chances of extinction than funds with less powerful names. A High-Grade Structured Credit Enhanced Leverage Fund sounds impressive at a dinner party, but make sure you’re only investing money that you’re happy to never see again!

fancy funds

Not All That’s Gold Glitters

Gold has been on a tear recently, with the gold spot price up almost 25% in the last year! This strong performance has attracted interest from investors, who are often sold a story that an impending crisis and high government debt levels will destroy the global monetary system, with gold set to skyrocket as a result of hyperinflation.

Scary stuff! And many investors have fallen for it, piling into gold in 2011 at the height of the US Debt Ceiling Crisis and missing out on the fantastic share market returns of the last 8 years in anticipation of a global meltdown.

gold returns

This isn’t to say that gold doesn’t have value in a portfolio. Last year Stanford Brown’s clients benefited from holding gold in their portfolios during the Q4 sell-off. However it is often ill advised to use gold as a long-term portfolio holding, especially if your investment thesis requires the global economic system to collapse!

Deepdene More Desirable Than Double Bay

For whatever reason there is a rivalry between Sydney and Melbourne. In fact, there’s a good argument that the only reason Canberra exists is because neither Sydneysiders nor Melbournians would have been able to stomach not being chosen as Australia’s capital city.

For those keeping count, Melbourne recently pipped Sydney as the world’s second most liveable city. The two cities were identical on all measures aside from culture and environment, which measures factors such heat & humidity, discomfort of climate to travellers, and food & drink.

liveable cities

Vienna was again named the world’s most liveable city, with its superior stability score (prevalence of crime, threat of terrorism, etc) besting Sydney and Melbourne.

Property is Back!

Much to the dismay of millennials, not only has the property downturn stopped, but sentiment is beginning to soar! The Sydney market rose 1.6% in August, with lower interest rates, tax cuts and loosening credit restrictions all contributing to the rebound.

property market

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