July 2018 Report

This month was the fourth month of the futures trading experiment. The first month was the model development phase, while May and June were about ironing out the glitches and training myself to trade the model properly (and not give in to gut instinct etc). In the first half of July I only traded one day and lost but model returns were good in the beginning of the month. Then in the second half of the month I got back into regular trading. Initially the model wasn't doing well but then things improved again as a short trade worked out.

The Australian Dollar fell from USD 0.7571 to USD 0.7432. The MSCI World Index rose 3.05% and the S&P 500 rose 3.72%. The ASX 200 rose 1.39%. All these are total returns including dividends. We gained 1.56% in Australian Dollar terms and 2.12% in US Dollar terms. So, we  outperformed the Australian market and underperformed international markets.

The best performing investment in dollar terms was Unisuper gaining AUD 4k closely followed by Cadence Capital (CDM.AX) gaining AUD 3.9k. The next best in dollar terms was Bluesky Alternatives (BAF.AX), gaining AUD 2.8k. The best performing asset class was "private equity", gaining 2.66%. The second best performer was US stocks, gaining 2.58%. The worst performing asset class was Australian large cap, gaining 0.41%.

The following is table of investment performance statistics computed over the last 36 months of data:

The first two rows gives the annual rate of return and Sharpe ratio for our investment performance in US dollars and Australian dollars. The other statistics are in comparison to the two indices. Based on beta, compared to the MSCI World Index we seem to be slightly geared, while compared to the Australian index we are less sensitive to market movements. We have a slightly positive alpha compared to the Australian and world markets. Finally, we now capture more of the up movements in the international and less in the Australian market and suffer less of the down movements in both the Australian and international markets.

This month I only made a small amount of money trading futures: USD 1.0k. The table compares my performance to the market and the model:

The US markets went up and then down. The model did outperform the market.* In the first week of July I didn't trade as I was in Japan and my phone wouldn't receive the text messages needed to log into the trading account. I actually received all these texts after returning to Australia! Then I traded long on a day when the futures price would suggest to be short and the index values suggest to be long and got stopped out. This made me do some more model research and revise the stops policy, though I found that index values provide better trading signals. After that I got back into regular trading trying to trade double the size but the model was losing at first. Then I started doing strategic and tactical trades, which helped psychologically.

We made more progress towards the new long-run asset allocation:

Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds.

The improvement in allocation, came partly due to market movements and partly due to investment activity. We invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. During the month, I also:

• I added another AUD 10k to the Winton Global Alpha fund, increasing the allocation to commodities.
• I added AUD 50k to the trading account and in the end was moderately successful at trading, increasing the allocation to commodities .
• I closed a small account with Colonial First State, which was invested in the CFS Geared Share Fund, reducing the allocation to large cap Australian stocks. 
• I rebalanced my CFS superannuation account, reducing the allocation to large cap Australian stocks and increasing the allocation to other asset classes.
  
• I bought 75,000 shares of BAF.AX increasing the allocation to private equity and real estate.
• I sold my position in PIXX.AX and bought a smaller amount of Platinum Capital (PMC.AX) and bought more as PMC fell further in price. This reduced the allocation to hedge funds.

* The statistics at the bottom of the table are based on only 4 months of data and so are not at all reliable yet.