February 2019 Report

In February stock markets continued their rebound. The Australian market rose especially strongly. The Australian Dollar fell from USD 0.7274 to USD 0.7106. The MSCI World Index rose 2.72% and the S&P 500 3.21%. The ASX 200 rose 6.32%. All these are total returns including dividends. We gained 3.18% in Australian Dollar terms and 0.90% in US Dollar terms. So, we underperformed the markets. This is not surprising given the weight of cash and bonds in our portfolio. Our currency neutral rate of return was 1.94%. I estimate that the target portfolio gained 3.08% in Australian Dollar terms.


Here again is a detailed report on the performance of all investments:

The table also shows the shares of these investments in net worth. At the bottom of the table I also included the Australian Dollars return from foreign currency movements and other net investment gains and losses - net interest and fees.

Things that worked very well this month:

• CFS funds - they all did well. Future Leaders continues to outperform Developing Companies.
• Our two UK listed stocks - 3i and Pershing Square Holdings.
• Medibank. It continues to bounce back nicely though we only have a very small posiiton.
• Unisuper made the largest gain in dollar terms, though we are still below the peak value last year.
• Many investments hit new profit highs including PSS(AP), Generation, and Hearts and Minds.

What really didn't work:

• Yellowbrickroad... I exited this investment at 6.5-6.6 cents per share following the release of the Royal Commission report. I should have gotten out much earlier. The shares are now suspended as the company has not filed its interim financial report. They are still working on writing down their assets... The last price they traded at was 5.4 cents.

Bonds mostly had negative returns. When you buy a corporate bond you have to pay the interest accrued since the last interest payment to the previous holder.

We moved towards the new long-run asset allocation:*

The main driver is continued movement of cash from my US bank account to Interactive Brokers where I am buying bonds before eventually transferring some of the money to our Australian bank accounts when the broker allows. The increase in rest of the world stocks is mostly due to updating the allocations of various managed funds for their current allocations. We are near the long term allocations for each of the stock categories and real estate. We are overweight cash and bonds and underweight commodities, private equity, and hedge funds.

On a regular basis, we also invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. Other moves this month:

• I bought USD 300k of corporate bonds and USD 100k of treasury bills matured. Our monthly bond ladder now extends to September.
• We sold 569 China Fund (CHN) shares back to the company at 99% of NAV in the tender and then bought 669 in the market for a lower price.
• We sold out of Yellowbrickroad (YBR.AX) at a big loss.
• I made a quick (losing) trade in gold futures (Included in gold above).
• We switched our choice of option in the PSS(AP) superannuation fund to "balanced" from a mix of "balanced" and "aggressive".
• I switched from Geared Shares to Imputation (leveraged and unleveraged Australian shares) in my CFS superannuation fund.
• At the end of the month I also switched to the balanced option in the Unisuper superannuation fund.

So, there was a big deleveraging/derisking theme that will continue. There are no capital gains tax implications to shifting the super funds, so I am doing them first.  We can still switch from the "Geared Growth" fund to an unleveraged version.

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