Masterworks Reverses Changes to Secondary Market

I recently reported that Masterworks had redesigned their secondary market. How exactly the new market would work was unclear, but you needed to make a new phone call with them before doing any trading and it seemed that they would send you opportunities to buy shares rather than their being a market with openly posted prices. Now, they have announced via email that they are reversing these changes:

"Hi everyone,

We recently announced changes to how secondary market trading works on Masterworks. We didn't get this one right, and we're sorry for the confusion. Based on your feedback, we've reversed or cancelled those planned changes and the secondary market is back to working the way it did before.

Our goal remains to make the secondary market more effective and user-friendly for all investors. We're continuing to work on improvements and will keep you updated as things develop.

In the meantime, if you'd like help navigating the trading platform, our secondary market advisory services are available to you. You can schedule a call to receive personalized guidance from our team here.

Thank you for your patience and your feedback."

I will take a look and see how things are going before deciding on whether to do some more trades. One of the paintings that I did buy last month has now had an exit above the price I paid, which provides some support for my approach to selecting secondary investments.
 

Tax Credit Update

I just updated my tax credits chart to include last year's tax returns and expected tax credits on this year's returns:

This doesn't include tax credits on our Self Managed Superannuation Fund's return. Three sorts of tax credits on both our tax returns are included. The most important are franking (or imputation) credits associated with Australian dividends. When a company pays Australian corporation tax they can pass on a credit for the tax paid to their shareholders. This credit gets added to the shareholders income but can also be subtracted from their tax due.* So, there is no double taxation of dividends in Australia. The second is tax withheld on foreign dividends, which can be claimed against Australian tax, and the third is the Early Stage Venture Capital Partnership credit. You get a tax offset equal to 10% of the amount invested in these partnerships (and the profits are tax free).

There are various reasons for the decline in franking credits since 2021/22.  One fund reorganized and now doesn't pay Australian tax (WCMQ.AX). Tribeca Global Resources (TGF.AX) paid a huge dividend in that year, and so on.

* If your franking credits exceed your tax liability the government sends you the difference! 

Performance Update

I stopped reporting these five year performance figures in my monthly reports, but I'm still tracking them, and I've added the target portfolio to the list of benchmarks.

The top panel in the table shows our portfolio performance over five years of monthly data in AUD and USD terms. Due to the fall in the AUD over this timeframe, the AUD performance is better. Also, AUD performance is far less volatile, which is part of our portfolio design.

The middle panel shows our performance relative to the five benchmarks and the bottom panel the performance of the five benchmarks. The benchmarks are the MSCI All Country Index (Gross, USD), the ASX 200 Index (including estimated franking credits), the HFRI hedge fund index (fund weighted), a monthly rebalanced portfolio of two Vanguard ETFs - VDBA and VDGR, and the Target Portfolio. Alpha and beta are estimated in regressions of our excess returns relative to either the US Fed or the RBA interest rate on the excess returns of the benchmark. The MSCI and HFRI benchmarks are in USD and the other three in AUD.

Of course the two equity indices are more volatile. The typical hedge fund is very conservative actually with very low volatility. In risk adjusted terms hedge funds return more than the other benchmarks, which is shown by the information ratio. 

We have positive alpha and lower "downside capture" relative to the three AUD benchmarks. Relative to the Target Portfolio we have a beta or almost one - meaning that a 1% increase in the excess return of the Target Portfolio is typically associated with a 0.97% increase in the excess return of our portfolio. But we also actually have a positive alpha, which shows that active management beyond tracking the target adds value. 1.5% p.a. is worth around AUD 100k per year. Actually, given the composition of the Target Portfolio, it is impossible to track it passively, as there aren't hedge fund or private equity ETFs. You need to pick specific funds. 

USVC

AngelList have announced a new mutual fund investing in venture capital called USVC. You can invest as little as USD 500. I have been thinking about investing in this via our SMSF. Previously, I wanted to invest in Unpopular Ventures on the AngelList platform using the SMSF but SuperGuardian, our administrator, said it wasn't allowed because of the partnership structure. Instead, we invested in Moominmama's name. This isn't a partnership, so it should be OK. It seems to be open to non-US investors despite the mutual fund structure. On the other hand, I feel I am too contrarian to be happy investing in all these US AI companies at this stage. At least 80% of the fund will be in US venture. That is why I like Unpopular Ventures because it is truly global. In retrospect I would have done much better with my investments if I had been less contrarian. But it is just this fundamental character trait. So, I try to work with it rather than against it. I feel uncomfortable going with the majority.

ASA Podcasts

Two of the partners of ASA who managed the Diversified Property Fund we are invested in have been on podcasts recently. Here are the links for Chris Aylward and Tim Slattery.

Closing US Bank Accounts

Keybank are increasing the security precautions on their bank accounts. You will need either a US phone number or a "passkey" to log in. Apparently, a virtual phone number won't work, it must be a real mobile phone. Up till now I had a virtual US number, used a friend's address as my mailing address, and used "secret questions" to log in. I tried to set up the passkey but it would only accept US government issued photo IDs. I don't understand why they are so US-centric. Don't they even have Canadian citizens as customers? Once upon a time this was an account at the globally focused HSBC. But mergers and acquisitions moved it to Keybank. This was my bank branch when it was temporarily owned by First Niagara:

So, I moved the money I had out of the accounts to Interactive Brokers. Now I need to get a USD account here in Australia to receive transfers from the US without getting terrible exchange rates. Moominmama has one at HSBC Australia. I might do that, but first I am investigating whether I can get a receiving account at OFX.

Update 4 April

In the end, I decided to go with HSBC Australia as it is a known quantity and setting up a business account with OFX seemed like it might be more complicated than what I need.

March 2026 Report

This was a down month across most assets as the Iran War intensified. On the final day of the month, US markets and gold rallied, causing a timing issue that makes our portfolio performance look relatively worse. Our overall portfolio did not perform as designed and fell as much or more than the markets generally. However, our superannuation accounts did perform relatively well. As a a result I am fairly relaxed as we continue to receive pensions from superannuation and dividends from non-superannuation investments as well as having large cash buffers. The Australian Dollar fell from USD 0.7116 to USD 0.6880 meaning that USD investment returns are worse than AUD investment returns. Here is the performance of our benchmarks (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -7.13%

S&P 500: -4.98%

HFRI Hedge Fund Index (forecast): -1.68%

Australian Dollar Benchmarks

ASX 200: -6.87%

Target Portfolio (forecast): -2.58%

Australian 60/40 benchmark: -4.64%

In Australian Dollar terms we lost 6.28% and in US Dollar terms we lost 9.39%. So we narrowly beat the ASX 200 but underperformed all other benchmarks. In dollar terms it was our worst month ever. We lost AUD 448k. The previous worst month was March 2020 when we were down AUD 316k. In USD terms we were down 476k vs. 331k during the COVID crash. The USD number is larger than the AUD in both cases because the Australian Dollar fell.

On the other hand, our SMSF lost 2.94%. Unisuper lost 2.68% and PSS(AP) 3.16%. So, we outperformed one of our superannuation benchmarks.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. All asset classes lost money. Hedge funds were the worst performer and the greatest detractor. Real assets performed least bad and detracted the least.

Things that worked well this month:

• Only six investments gained money with the Winton Global Alpha fund gaining the most at AUD 5k.

What really didn't work:

• Twelve investments lost more than AUD 10k and four lost more than AUD 50k! These were the L1 Global Long-Short Fund (GLS.AX), Tribeca Global Resources (TGF.AX), 3i (III.L), and gold.

We moved a little towards our target allocation. Our actual allocation currently looks like this:

 

Almost 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity and credit, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly pension payments from both Unisuper and our SMSF totalling AUD 5,150 per month. I was less active than recently in the market, making the following investment and trade moves this month:

• I transferred USD 5,000 to Masterworks to buy shares of paintings on the secondary market just before they decided to shut down that market in its current form.
• I bought 5,000 shares of each of CD3.AX and MOT.AX in our SMSF.
• I bought 5,000 shares of Cadence Opportunities (CDO.AX) and 1,000 shares of the ASX 200 ETF, IOZ.AX in Moominmama's account. 
• I bought 1,000 shares of the gold ETF, PMGOLD.AX, in my account. 

Here are the income and spending accounts * for this month:

Other income includes Moominmama's salary and employer superannuation contributions and totalled AUD 4k. Spending was down to AUD 8k, which is what I'd expect in months without school fees. This number does not include our mortgage payments, which are regarded here as saving and investment costs. Dissaving amounted to AUD 4k, well within the 4% rule limit. However, we lost AUD 438k investing. As I noted a week ago, most of this was in non-retirement accounts: -358k, with "only" AUD 80k lost in retirement accounts. As a result of all this, net worth decreased by AUD 440k to AUD 8.152 million.

* Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey shaded rows are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, and net tax returns. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends and imputed tax on industry superannuation returns and and actual SMSF tax. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances. 

Intra-Month Portfolio Update

Currently our portfolio is down about 6.5% this month compared to the ASX 200 down 7.5%. The 60/40 benchmark is down 4.5% and the target portfolio only 3.1%. I am not too worried, as our SMSF is down only 2.4% and Unisuper 1.9%. These are the retirement accounts we are drawing a pension from. We have just over a year's worth of pension in cash in the SMSF and near two year's worth of spending in cash in our offset account.

The losses are concentrated in our non-retirement accounts, which are down 9.6%. Within those, gold is down sharply and the discount to NAV at several closed end funds has increased sharply, with Tribeca Global Resources (TGF.AX) "leading" the way.

Almost 40 Years of Spending

I am helping a friend make a move from New York to Texas with financial advice and a small loan. Talking about budgeting got me to go look at the longest term spending data I have electronically. This is in Pounds Sterling and I can't be bothered to convert to dollars because I would have to research exchange rates from the 1980s. It goes back to September 1988. I probably could extend it further from handwritten records. But, anyway, this is what I have readily to hand:

It's also not inflation adjusted (see below). Apart from the upward trend, it is noticeable how much more volatile the series gets recently. You can see the peak when we bought our house (stamp duty) and the trough at the start of the Pandemic. There are previous peaks usually associated with moves, like in 2007 when we moved to Australia. Currently, school fees are the most volatile element in our budget. Actually, in percent terms, spending got more volatile recently, but it's not more volatile than it was in the earlier years of the series:

So, the first version of this post used non-inflation adjusted data. I easily found almost uptodate data on the UK Retail Price Index. This is not ideal as for most of this period I was spending in Australian or US Dollars. The exchange rate and then the use of a foreign price index will distort things. But if you want to know what our spending was in today's pounds, it is correct:

 

I also added a two year moving average. Spending does rise 4 to 5-fold. This is not surprising. We now have four people rather than one. Real spending fell after rising to a new level following my first move to Australia and my last move to the US. And this is also true since we moved into our current house, despite going from two to four people during that period. Real spending has been drifting lower over the last decade. On the other hand, it continued higher after other moves.

Masterworks "Redesigns" Secondary Market

I recently invested USD 5,000 in paintings I bought at large discounts on the Masterworks secondary market. I was thinking to do more such purchases now and then and gradually build up a more diversified portfolio. I targeted offerings that had appreciated since their initial offering and so were more likely to have a near term exit, which were selling at large discounts - up to 50% of appraised value.

Bracco di Ferro by Basquiat

Masterworks was only allowing buy orders to be placed for one day at a time. I think the idea was to force buyers to buy at the offer price and so maybe push prices up. But the result was that someone casually looking at the site saw piles of sell orders and no buy orders and would conclude that this was not a good investment. 

Then today we got an email from Masterworks saying that in future sellers will need to discuss their planned sales with Masterworks and buyers will be offered curated offers. You need to sign a new agreement to participate. From my reading of the agreement, they will charge an extra 2% p.a. AUM fee for participating. I've emailed the firm for clarification on that. If so, I won't participate. I am guessing they plan to buy shares at a discount from sellers and then sell them at a marked up price to buyers.

Recently, I talked to their sales guy who offered me investments in funds. These funds consist of shares in paintings which Masterworks has received as annual management fees. They are offered at a 10% discount to appraised value. The minimum investment for one fund was USD 100k and for the other 25k. I told him I preferred to buy in the secondary market. I guess a bunch of people have told them that. Now maybe the 25k fund looks a little attractive but it also includes paintings that are trading way below their initial offering price that I think might never be exited.

P.S. 16 March 2026

I got an email back from Masterworks saying that they didn't intend to add an additional 2% fee and they will change the wording of the agreement.

February 2026 Report

The Australian Dollar rose from USD 0.6989 to USD 0.7116 meaning that USD investment returns are better than AUD investment returns. Stock markets mostly rose (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 1.31%

S&P 500: -0.76%

HFRI Hedge Fund Index: 1.92%

Australian Dollar Benchmarks

ASX 200: 4.33%

Target Portfolio: 0.16%

Australian 60/40 benchmark: 1.27%

In currency neutral terms we gained 1.31%. But in Australian Dollar terms we lost 0.33% and in US Dollar terms we gained 1.48%. So we beat the USD stock index benchmarks but underperformed the AUD benchmarks and HFRI. Hedge funds are having a good performance patch. It was the first down month for the S&P 500 since April 2025! February is a seasonally negative month for both the S&P 500 and our own portfolio.

The target portfolio has been flat for several months now as the rise in the Australian Dollar and.a fall in venture capital offset gains in other asset classes:

The SMSF underperformed, losing 1.83%. Unisuper  returned 0.92% and PSS(AP) 1.37%. 

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Performance was very mixed with a huge rate of return for futures. Hedge funds slightly edged futures out in terms of contribution. Gold had the worst rate of return and detracted the most.

Things that worked well this month:

• Four investments made more than AUD 10k: L1 Global Long Short (GLS.AX, 26k), Tribeca Global Resources (TGF.AX, 22k), Australian Dollar Futures (14k), Winton Global Alpha (11k). Eleven investments hit new high profit marks including GLS, TGF, and Winton. For TGF the previous peak was in 2022. Cadence Opportunities hit a new peak, with the previous peak in 2021!

What really didn't work:

• Three investments lost more than AUD 10k: Pershing Square Holdings (PSH.L, 24k), gold (15k), and Regal Investment Fund (RF1.AX, 15k). Because of timing issues, the price of the PMGOLD gold ETF fell, while the price of gold rose in US Dollar terms for the month. This wasn't because of the rise in the Australian Dollar. The USD price of gold when converted into AUD rose from AUD 7,000 to AUD 7,413! Ratherm there was a 9% fall in the USD price of gold on the last day of January. But the ASX closed before that happened.

We moved towards our target allocation. Our actual allocation currently looks like this:

 

About 68% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity and credit, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly pension payments from both Unisuper and our SMSF totalling AUD 5,150 per month. I made non-concessional contributions of AUD 30k Unisuper and AUD 20k to our SMSF. I am thinking to max out the total possible contributions before I probably hit the transfer balance cap at the end of this financial year and can't make any further non-concessional contributions. There is a twist that complicates things. The transfer balance cap is expected to be raised by AUD 100k next year. I was very active in the market, making the following investment and trade moves this month:

• I bought 5k shares of Regal Partners (RPL.AX) on a dip.
• I bought 10k shares of Hearts and Minds (HM1.AX) on the same dip in the market. 
• I bought 4k shares of WAM Capital (WAM.AX) to round out our position to 110k. This was funded really from the gain in our Australian Dollar Futures. When futures rise, the cash in your account increases and vice versa...
• I bought 10k more shares of Cadence Opportunities (CDO.AX). 
• I did two profitable trades in gold and used the proceeds to buy 5k shares of Wilson Alternative Assets (WMA.AX). This should help rebalance our portfolio a little towards real assets. Then I did an unprofitable trade in gold...
• I sold 50 shares of Berkshire Hathaway (BRK/B). I'm a bit disappointed that it is below where I bought it in last year's market correction. This helped rebalance our portfolio a little away from US stocks. 
• I sold 1,000 shares of the ASX 200 ETF, IOZ.AX. This helped rebalance our portfolio towards the target portfolio and together with the BRK/B sale fund the following: 
• I bought 2000 shares of ZIM. I was planning on this being a longer term trade, but I ended up getting out after one day!
• So, instead I bought 500 additional shares of Pershing Square Holdings (PSH.L). 
• I sold more than 23k shares of Regal Investment Fund (RF1.AX). The market price was near the NAV now.
• I then bought 350k shares of the US Residential Property Fund, URF.AX. They now say that they will try to sell all property by the end of the year. This should close the gap between NAV and the market price. Risk is that the Australian Dollar rises a lot in the interim reducing NAV. This also helped rebalance the porfolio.
• I also bought just over 10k shares of the Cordish-Dixon Private Equity Fund III (CD3.AX). I liked the recent presentation on fund performance and think it is really undervalued. 
• I invested USD 3,750 in another start up with Unpopular Ventures.
• I made a new investment in 500 shares of the Alerian MLP ETF. This also helped rebalance towards real assets.

Here are the income and spending accounts * for this month:

Other income includes Moominmama's salary, a refund Moominpapa received and employer superannuation contributions. There was a larger than normal transfer into superannuation as I made the non-concessional contributions mentioned above. Spending was almost AUD 30k. This was the highest monthly spend since January 2015 when we bought our house and paid stamp duty! This was a high month due to school fees and a big "professional" expenditure by Moominpapa. As a result dissaving was AUD 23k for the month, which is just at the 4% rule limit. Because we lost AUD 24k investing, net income was AUD -18k. As a result of all this, net worth decreased by AUD 49k to AUD 8.608 million.

* Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey shaded rows are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, and net tax returns. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends and imputed tax on industry superannuation returns and and actual SMSF tax. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances. 

Just Cancelled My Life and Disability Insurance

I hadn't realised I was still paying life and disability insurance premia post-retirement. I just cancelled them online, saving about AUD 700 per year. The amount you pay is fixed or rising with inflation, but the coverage that you get falls as you get older and stops entirely for disability at 70 and death at 75.

Switching to Gold in Little My's Portfolio

 

Little My (our younger child) has an investment bond managed by Generation Life. Now and then I decide to tweak the portfolio allocation. I just noticed that iShares Physical Gold is now an option. So, I am switching from Magellan Global (soon to be managed by L1 instead) to gold. Gold is in the target portfolio and my own portfolio and we already have more than 1/3 of the portfolio managed by L1. So this is the new allocation:

iShares Physical Gold: 9%

Atlas Infrastructure: 8%

L1 Long Short Fund: 35%

Generation Life Tax Effective Australian Shares: 20%

Dimensional 70/30 World Allocation: 28% 

So, in terms of asset classes:

Australian Shares: 30%

International Shares: 10% 

Hedge Funds: 35% 

Credit 8% 

Real Assets: 8%

Gold: 9%

The gold position is not quite one ounce (shown in the picture above). 

The portfolio is more aggressive than the target portfolio, which makes sense as Little My is very young. 

Alerian Master Limited Partnership ETF

I made a small investment of 500 shares of this ETF in the SMSF. It is an ETF of master limited partnerships, which are entities owning pipelines in the US. So, this counts towards my real assets allocation. It pays a high dividend of 7.8%, so it contributes towards our income investments that are intended to fund the SMSF pension. In recent years, since the pandemic it has performed well with a relatively low beta and high alpha to the stock market. So, it counts towards my "passive alpha" category as well. In the long-term though it has tracked the price of oil to quite a large degree and so isn't a set and forget investment. But I expect that in the near future energy demand to generate electricity for AI will be growing.

Bad Timing Switching Funds

In May last year, I switched from the Aspect Diversified Futures Fund to the Acadian Global Long Short Fund in our SMSF.* Since then Aspect has done very well:

I sold almost right at the bottom. It has gained more than 25% since then! What has Acadian done? It has risen a bit and then fallen:

Maybe a 3% gain :( The longer term performance has been really good though. If I had stuck to our target allocation, I would have kept Aspect and done better. I'm not going to switch back now. It's just as likely that Aspect falls again and Acadian continues its long term trajectory.

* The linked post talks about switching from Generation Global to Acadian. That was in another account. We switched to Acadian in two accounts. Generation rose about 12% after the switch but has now nose-dived to be down about 4%. So, that switch made sense.

Local Auction Boosts Our Estimated Net Worth

I went to the auction of a townhouse within my data catchment that I use to estimate the value of our home:

 

It sold for AUD 920k with two serious bidders. When I plug the number into my model, it boosts the value of our house by around AUD 250k, which seems crazy! As more data rolls in for this year, I think the estimated price will go down.

This was a popular TV show when I was in primary school:

 

That was worth a lot more back then.😀

ZIM

 

I bought 2000 shares of ZIM. A takeover was announced by Hapag-Lloyd, but the shares are trading about 25% the acquisition price based on the fear that the Israeli government wouldn't approve the deal and that the workers have announced a strike over job losses. But part of the company will be carved out and sold to an Israeli private equity firm to assuage this concern. Presumably, some sweetener will be found for the workers. In the meantime, the company will hopefully continue to pay its very high dividends. The price has been in the doldrums because shipping rates are currently low and presumably there is geopolitical risk. Potentially, the EU could be concerned about the merger. Well, this is just a 1% speculative position.

Update 19 Feb 26

Well that didn't last long. I saw this article and immediately dumped my position for a USD 333 profit. It's hard to believe that Hapag-Lloyd didn't discuss this with the Israeli government before structuring this deal. But I don't want to risk losing money on this.

More Good Venture Capital News

I recently reported that my investment in the Aura VF2 fund was now in profit. Now, our Angellist investments through Unpopular Ventures have swung into profitability too:

 

There is a 3 month lag in reporting values. We invest in their Rolling Fund as well as individual firms. One of those firms is now reporting that it is worth 9.5x the value I invested at. On the other hand, two companies I invested in have effectively gone to zero. While I am excited to not be losing money any more, our overall IRR on our Angellist investments is only 2.76% so far. 

But this is an AUD 60k bump in value that makes a substantive change to our numbers for 2025. It pushes up our 2025 rate of return to 9.68% in AUD terms or 18.14% in USD terms. That puts us just ahead of the S&P 500 for the year:

The "retirement number" rises to AUD 7.011 million. Total net worth at the end of the year Was AUD 8.252 million, which is comfortably ahead of the base case net worth projection of AUD 8.2 million. Also, the private equity return for the year roses to 9.3% from 4.7%! The annual contribution to total return from private equity was 1.8% instead of 0.9%. Unpopular Ventures returned AUD 40,118 for the year, making it our 8th best investment.

How Closed-End Funds Should Trade in Theory

An interesting post from Financial Samurai or how closed-end funds trade. A closed-end fund is one that trades on a stock exchange but has a fixed number of shares on a day to day basis.* They may occasionally do additional share issues, or reinvest dividends, or even buy back shares, but they don't buy and sell shares continuously to keep the market price at the net asset value or NAV. ETFs, by contrast, do continually create or redeem new shares to keep the market price close to NAV. I posted a comment about where the equilibrium price of a closed-end fund should be that I thought was worth its own post here.

In theory, if the fund manager grows the NAV of the fund with distributions reinvested faster than the average stock market rate of return (for assets with similar beta), then a closed end fund should trade higher than NAV and vice versa. 

This should be the equilibrium price, so that investors don’t get a free lunch of a higher than average return or conversely a worse than average return. If the average fund manager performs the same as the market before fees then on average after fees managers will under-perform the market and so the typical closed end fund will trade at a discount to NAV.

Of course, actual prices often deviate from this equilibrium for a long time! Pershing Square Holdings, which trades on the LSE, is a classic case. It has either outperformed or matched S&P 500 performance over the last few years while investing mainly in large cap US stocks, but trades at a massive discount to NAV. As an investor, one of my reasons for investing was this large discount. We’ve experienced good returns but not much closing of the discount. In fact the discount today is the same as it was in 2021 when we finished buying our current position. The market price is 25% below NAV! Our internal rate of return has been 20%, which is clearly better than the stock market average. The S&P 500 has returned 15% p.a. over the last ten years or 14% over the last five. So, it is crazy that the discount hasn't at least narrowed.

* Sometimes people refer to unlisted private equity funds that raise a given amount of money and then invest it as closed end funds too.

Concentration in the Mag 7 (Updated 27 February)

What is our exposure to the Mag 7? This came up in recent discussions. People are worried about being overly concentrated in a few maybe over-valued companies. I can't put an exact number on our exposure, as Unisuper and PSS(AP) do not publish their asset allocation at the individual stock level and other funds also have partial or no information. But we can estimate it. I'll go through the calculation, fund by fund, in the following.

Unisuper: This is Moominpapa's employer superannuation fund. I estimate that 22% of the fund is in US stocks. The share of the Mag 7 in the S&P 500 is 34%. Without further information, I assume this share applies here. 11.6% of net worth is in Unisuper. Multiplying these three numbers together gives 0.87% of net worth.

PSS(AP): This is Moominmama's employer superannuation fund. I estimate that 13% of this fund is in US stocks and 8.5% of net worth is in the fund. Therefore, 0.38% of net worth is in the Mag 7 here.

CREF Social Choice: This is the main fund in Moominpapa's US retirement account. I estimate that 42% is in US stocks and 3% of net worth is in this fund. This fund, therefore, contributes 0.43% of net worth exposure to the Mag 7.

WCM Global Quality (WCMQ.AX): In their latest portfolio disclosure, they report holdings of Microsoft, Amazon, and Nvidia. Total exposure is 9.6%. WCMQ is 1.5% of our net worth. 1.5%*15.55% = 0.14%.

Hearts and Minds (HM1.AX): Again, Microsoft and Amazon are in the top 10 holdings, as is Nvidia. But we don't know how much of the portfolio either of these is. The top 10 as a whole represents 44% of total portfolio holdings. Let's guess that MSFT and AMZN are 3/10 of this. The remaining non-conference holdings are 21% of the portfolio. Let's assume that 65% of this is US stocks and Mag 7 is 34% of this. 18% of the total portfolio is then estimated to be in the Mag 7. HM1 is 1.7% of net worth. So our exposure is estimated at 0.30%.

Pershing Square Holdings (PSH.L): They hold three Mag 7 stocks–Google, Amazon, and Meta. The annual report shows total expsoure of 36.71%. We have 6.3% in PSH and so our net worth exposure is 2.3%.

Acadian Global Long Short: They provide a top 10 list of holdings, which includes all the Mag 7 apart from Tesla! The total exposure is 25.6%. I assume that they do not hold Tesla and given our portfolio exposure of 3.3%, our Mag 7 exposure is 0.84%.

L1 Global Long Short (GLS.AX): They have not published any information on portfolio allocation. Assuming that 65% is in US stocks and 34% of that is in the Mag 7, given our 4.6% allocation to GLS, our exposure would be 1.02%.

In total, we have a 6.28% net worth exposure to the Mag 7. This is very small compared to someone who followed Warren Buffett's advice to just invest in an S&P 500 index fund. Someone who invested in a 60/40 portfolio including a global index fund would have about a 14% exposure. So, it's small compared to that too. Are we under-exposed to tech stocks? Well, we have around a 10% exposure to venture capital and WCMQ's largest holding is AppLovin. So, I don't think so.

Annual Report 2025: Long-term Graphs

After looking over some of my previous annual report posts, I realised that I haven't posted long-term graphs of net worth in recent annual reports. I focused more and more on just the year under consideration. So, here is some longer term context that I used to include.

Here is net worth since 1996 and a breakdown into home equity, retirement accounts, and everything else: 

 

The big jump in 2018 is the inheritance. Non-retirement accounts have not increased that much since then as we moved money into home equity and retirement accounts. The next graph shows a breakdown of savings:

 

This graph is rather messy, which is maybe why I stopped posting it :) Retirement and non-retirement accounts are each split into savings and investment earnings. Non-retirement savings are negative because we moved money into home equity and retirement accounts. There was a jump this year when I received the redundancy payment. On the other hand, non-retirement profits are the largest component. This year saw a fall in home value and slow progress in retirement accounts as discussed in the first post in this series. But there were strong non-retirement earnings. Retirement accounts value is roughly 50/50 contributions and earnings at this point.

 

Annual Report 2025: Individual Investments

As promised, here are the individual investment results for 2025 (Australian Dollars):

Other costs and benefits like interest and fees and exchange rate gains and losses are not included here. I also don't go down to the level of the very small individual investments inside the Masterworks, Unpopular Ventures, and Domacom investments boxes.  

I also make no attempt to compute individual rates of return. My goal is to have twice as many winners as losers and to make at least twice as much on winners as I lose on losers. So, position sizing is part of the story. Based on that goal, I had more than enough winners, but only won slightly more on each winner as I lost on each loser. Without the two worst losers, I only lost $9.9k per loser. In the long term, my winning positions have gained more than five times as much as losing positions have lost. Of course, both Bitcoin and Defi Technologies gained more in the previous year than they lost in 2025. In the long run, these were winning investments.

Gold was the top performer this year, after coming in second last year. It was followed by two listed hedge funds and then the Aura Venture Capital Fund 2. Next came our two employer superannuation funds, each of which is 8-12% of our portfolio. The diversified Regal Investment Fund put in a good showing at 7th position. WAM Capital is a new investment I made during the April Tariff Tantrum. Australian Dollar Futures are paying off this year after being the worst performer last year. Finally in the top 10, CREF Social Choice is a balanced fund in my US retirement account (403b).

Annual Report 2025

All $ signs in this report indicate Australian Dollars. I'll do a separate report on individual investments. I do a report breaking down spending after the end of the financial year.

Overview 

Investment returns were positive and net worth again increased. My base case net worth projection was $8.2 million and we reached $8.192 million. In December we again travelled to China and this time Vietnam for the first time. I did some short business trips to Sydney and Brisbane during the year as well. My 61st birthday was in December and at the end of November I took a redundancy package from my employer and retired.

Investment Return

In Australian Dollar terms we gained 8.7% for the year while in USD terms we gained 17.1%. The big gap is because the Australian Dollar rose. The MSCI gained 22.9% and the S&P 500 17.9% in USD terms while the ASX 200 gained 11.9% in AUD terms. The HFRI hedge fund index gained 12.7% in USD terms. Our target portfolio gained 7.3% in AUD terms and the Vanguard 60/40 AUD benchmark returned 9.8%. So, we under-performed all benchmarks apart from the target portfolio and HFRI. But we didn't do that badly compared to the S&P 500 given we target a much lower volatility. The poor performance of the target portfolio was also due to the rise in the Australian Dollar.

This chart compares our portfolio to the benchmarks in Australian Dollar terms over the year:

 

It was actually a smoother ride in USD terms:

This was unusual as the Australian Dollar usually falls during stock market crises.

  

Here are annualized returns over various timeframes:

 

We beat the HFRI, the target portfolio, and the 60/40 portfolio over the last 5 and 10 years. Our performance over 20 years is still very weak, though it matches the HFRI.

 

Here are the investment returns and contributions of each asset class in 2025 in currency neutral and unlevered terms:

The contributions to return from each asset class sum to the total portfolio return. The portfolio shares are at the beginning of the year. Rest of the world stocks did worst, because of the performance of Defi Technologies, followed by futures, which includes bitcoin. Gold was the best performer followed by hedge funds and each made similar large contributions to the total return. Private equity was disappointing, in large part due to the fall in 3i near the end of the year, the shutdown of Kyte, and a disappointing earn out at IPS. A good result from Aura VF2 saved the day.

Investment Allocation

There were significant changes in asset allocation over the year:

 

We reduced exposure to futures = crypto (-12.8% of portfolio), RoW stocks = Defi Technologies (-4.3%), and real assets (-4.2%) over the year and increased exposure to all other asset classes and hedge funds, in particular (+7.7%).

Accounts

Here are our annual accounts in Australian Dollars: 

 

Percentage changes are for the total numbers. There are lots of quirks in the way I compute the accounts, which have gradually evolved over time. There is an explanation at the end of this post. 

We earned $440k after tax in salary etc. This grew massively due to the redundancy payment. Total non-investment earnings including retirement contributions were $473k, up 97% on 2024.

 

We gained (pre-tax including unrealized capital gains) $507k on non-retirement account investments. The rise in the Australian Dollar reduced those gains by $43k. We gained only $30k in retirement accounts with $32k in employer retirement contributions. Gold and hedge funds contributed strongly to non-retirement funds and retirement funds suffered from the crypto theme.

 

The value of our house is estimated to have fallen by $64k. As a result, investment gains totaled $472k and total income $945k.

 

Total spending (doesn't include mortgage payments, life insurance, margin interest etc.) of $158k was down 7% on last year.

 

$21k of the current pre-tax investment income was tax credits – we don't actually get that money directly so we need to deduct it to get to the change in net worth. We do receive some refund of franking credits in our annual tax returns, which count towards "Other income". We saved $289k from salaries etc. before making contributions of $74k to superannuation. I also record a $7k "inheritance", which is a gift we received on our trip to China. Current net worth increased by $701k.

Taxes on superannuation returns are just estimated because, though we know the tax paid by the SMSF, our employer superannuation funds only report after tax returns. I estimate the tax these funds paid to make retirement and non-retirement investment returns comparable. The total estimated tax on superannuation was $29k. Net worth of retirement accounts increased by $108k after the transfer from current savings. With the gain in the value of our house, total net worth increased by $745k.

Projections

Last year my base case scenario for 2025 was for an increase in net worth of $800k to $8.2 million, which we hit. For this year, my best case scenario is for an increase of $900k to $9 million. My bear case is for a decline to $7.5 million, which is roughly what we would expect if stock markets fell 20% assuming a beta of 0.5 and alpha of 5%. The Australian Dollar would likely fall in that scenario, boosting the Australian Dollar value of foreign investments.

Notes to the Accounts

Current account includes everything that is not related to retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. However, property taxes etc. are included in the current account. Since we notionally converted the mortgage to an investment loan, mortgage interest is counted in current investment costs. So, the only item in the housing account now is increases or decreases in the value of our house. This simplified the accounts a lot but I still keep a lot of cells in the spreadsheet that might again be used in the future.

 

Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... 

 

"Saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.

Where the Money Came From

I just updated this graph, which breaks net worth down into savings, inheritance, and investment profits. 

Savings are from salaries etc and tax returns as well as employer superannuation returns. Inheritance is self explanatory. Investment returns include franking credits and an estimate of the taxes paid by industry and public sector superannuation funds. Here I also include the increase in the value of our house. To get actual net worth, we need to subtract from the total tax paid by the SMSF, franking credits received by non-superannuation investments, and taxes paid by those large superannuation funds. These taxes currently sum to AUD 400k.'

Roughly one quarter of net worth is from savings, one quarter from inheritance, and half from investment returns. You can see the recent effect of the redundancy payment on savings on the bottom right.

It would make more sense to place profits as the bottom layer on the graph as they were negative during the dot-com crash and the GFC. But I think it is more instructive to see the steady rise in savings over time. Now of course, I expect it to go slowly down again as we dissave.

 

January 2026 Report

We had very strong investment performance in January, especially in USD terms. The Australian Dollar rose from USD 0.6674 to USD 0.6989 meaning that USD investment returns are better than AUD investment returns. Stock markets rose (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 2.98%

S&P 500: 1.45%

HFRI Hedge Fund Index: 0.75% (forecast)

Australian Dollar Benchmarks

ASX 200: 1.78%

Target Portfolio: -0.74% (forecast - depends on HFRI result) - this is negative because of the rise in the AUD and the negative performance of venture capital this month.

Australian 60/40 benchmark: 0.53%

We gained 2.84% in Australian Dollar terms or 7.70% in US Dollar terms. So we crushed all benchmarks. Here is a graph comparing the portfolio's track record with two of the AUD benchmarks:

As you can see, the three portfolios have very similar volatility, which justifies using them as benchmarks. Also, all three target 60% exposure to equities.

The SMSF again outperformed, returning 3.25% beating Unisuper (0.82%) and PSS(AP) (0.33%). 

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Only US stocks lost money. Gold had the highest rate of return and largest overall contribution. Australian Dollar futures contributed to the strong Futures result.

Things that worked well this month:

• Gold was the greatest gainer at AUD 116k - the greatest monthly gain for gold so far. In all, seven investments gained more than AUD 10k: L1 Global Long Short (GLS, AX, 41k), Tribeca Global Resources (TGF.AX, 36k), Australian Dollar Futures (23k), Pengana Private Equity (PE1.AX, 17k), Regal Investment Fund (RF1.AX, 17k), and 3i (III.L, 13k).

What really didn't work:

• Only one investment lost more than AUD 10k: Pershing Square Holdings (PSH.L) with a loss of AUD 28k.

We moved towards our target allocation. Our actual allocation currently looks like this:

About 68% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity and credit, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly pension payments from both Unisuper and our SMSF. I made an AUD 13k concessional contribution to our SMSF to bring my concessional contributions for the tax year up to the 30k cap. I will decide how much to more to contribute as non-concessional contributions to superannuation later in the financial year. I made the following investment moves this month:

• I sold 9k WAM Capital (WAM.AX) shares.
• I sold 500 3i shares (III.L).
• I sold 1,000 shares of the gold ETF, PMGOLD.AX.
• I bought almost 7k Hearts and Minds (HM1.AX) shares.
• I bought 19k shares of Tribeca Global Resources (TGF.AX).

Here are the income and spending accounts * for this month:

Other income includes Moominmama's salary and employer superannuation contribution and Moominpapa's payment of Division 293 tax :( There was a larger than normal transfer into of superannuation as I made the concessional contribution mentioned above. Spending was low - we spent the first 2/3 of the month in China and Vietnam. As a result dissaving was only AUD 3k for the month. The 4% rule says we could dissave AUD 23k per month :) Next month's spending is going to be a lot higher as we pay school fees. As a result of all this, net worth increased by AUD 193k to AUD 8.386 million.

* Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey lines are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, and net tax returns. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends and imputed tax on superannuation returns. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances. 

Aura VF2 Reports

The Aura VF2 venture capital fund has reported for the final quarter of calendar year 2025 and it has jumped sharply into profit.

 

I now have an IRR of 10.6%. It increased the rate of return for December to 2.5% in AUD terms or 4.5% in USD terms, which crushed all benchmarks.

Tribeca Global Resources

After several years of disappointing performance, Tribeca Global Resources (TGF.AX) has performed extremely strongly in recent months:

My investment hit a new profit high exceeding the 2022 peak. After previously giving back all the 2022 gains, this strong performance makes me wonder if I should sell now. One reason not to sell is that if I wait my capital gains tax rate should be lower next financial year (it's in my personal name). Also, there is still a big gap between NAV and the share price, which wasn't the case at the 2022 peak. Pre-tax NAV is $3.81 and post-tax $3.34 while the share price is $2.88. Will the gap close? Finally, the fundamentals supporting resources strength don't seem to be changing yet. So, I think I will hold on for now.

Moomin's 2025 Investment Performance

I recently reported how well Little My's portfolio did in 2025. I was pretty pleased with his performance for the year. Today, my brother sent me the 31 December value of Moomin's investment portfolio, which he manages in my mother's home country. Both received the same amount of money (£25k) from my mother's estate. He gained 57.4% in AUD terms! His account is now worth AUD 114k while Little My's is worth AUD 73k. For the last two years Moomin's money has been invested in two mutual funds. Prior to that my brother had many more investments and changed them frequently with mediocre results. 

Each child can access their money at age 23. Two of my brother's children were already 23 when the estate was settled. I was interested to hear that neither of the two who had their 23rd birthday since then have asked to get their money. So, he is still managing their accounts as well as his youngest daughter's.

How Well Did Your Super Fund Do in 2025?

The Australian reports on superannuation funds' performance for calendar year 2025. Neither of our employer funds - Unisuper and PSS(AP) - made the top ten. Unisuper Balanced is in the top 10 for the last 10 years. The average return for 2025 was between 8.8% and 9.3% depending on the source. I assume this is for accumulation funds. I estimate that Unisuper made 7.8% pre-tax or around 6.8% post-tax. PSS(AP) made 10.5% or 9.2% post-tax. On the other hand, our SMSF returned -6.1% pre-tax :( This is mostly because of its outperformance in 2024 (34.0%) and cryptocurrency coming back down to Earth in 2025.

Little My 2025 Investment Performance

Little My (our second child) had a good year investment-wise:

His estimated pre-tax return was 20.8%.* The ASX200 had a gross return including estimated franking credits of 11.9%. The MSCI gross world index returned 14.1% in AUD terms and our target portfolio has an estimated return of 7.3%. 

 

Seems like I have finally managed to put together a decent portfolio for him. Currently, we have 33% in the L1 Long Short Fund, 28% in the Dimensional 70/30 fund, 10% in Generation Life Tax Effective Australian Shares, and the remainder in two Magellan fund options.

 

* 30% tax is deducted automatically from the returns of "investment bonds".  However, there is a trick that could reduce this tax to the recipient's marginal tax rate when the bond is finally cashed out. By adding an additional payment the ten year period of investment that is needed to get the 30% rate will be reset. This makes sense if the recipient has a marginal rate below 30%. This works because additional contributions have to be within 125% of the previous year's contribution in order not to reset the bond. Given that our additional contributions since the initial investment have been zero...