What is my Best Investment?

I was just listening to a pod-cast where the host asked the guest (Karsten Jeske) what their best investment was and they could give an answer in annual percentage terms. Up to now, I have tracked returns of individual investments in absolute dollar terms. I can easily say which has been my best and my worst on that basis. The best was the Colonial First State Geared Share Fund and the worst has been the Tribeca Global Resources Fund. But dollar returns depend on the amount invested. I do have average monthly percentage returns for many investments, but properly taking into account transactions is hard. So, I thought that I could compute the internal rate of return. This does take all transactions properly into account. You need to compute each monthly net cashflow into the investment (which I already have in individual spreadsheets I keep on each investment) and then for the current month assume that the investment is sold at the current price. Excel has an IRR function that can be applied to the column of cashflows.

I plan to do this slowly as I have invested in around 200 different things. The first three I did are gold (34% p.a.), China Fund (14% p.a.), and 3i (6% p.a.). 3i was surprising as this is a lot less than the average annualized monthly return of almost 14%, that I previously computed.

Masterworks

Masterworks are a fairly new firm offering securitized investments in artworks. They buy paintings by recent and living artists and then sell shares to investors. They charge a 1.5% per annum management fee and plan to charge 20% of profits when an artwork is sold. They also get a markup on the price that they pay, presumably to cover acquisition and offering costs. I am interested in investing a small amount and have scheduled an interview to talk to them. They interview all new clients. One thing that interests me is our family connection to art. My father's family were antique and art dealers before the Second World War in Germany. My brother is an amateur artist who has sold a couple of paintings, I think, and my mother painted as well. But this doesn't give me any particular insight on the financial side of the art market. I'd aim to diversify across the paintings they are offering.

This investment is more equivalent to private equity buyout rather than venture capital. It doesn't make sense for the firm to buy a painting for $10k or $100k by an unknown artist hoping that it will appreciate because they make a separate special purpose vehicle filed with the SEC for each of their offerings. So they are buying paintings at around $2 million or so a piece.

P.S. 25 August

I had my interview today with a representative from Masterworks and was approved to start investing. I learnt that there is a USD10k minimum investment for the primary offerings. I now made my first purchase and have transferred the money using OFX. Based on the spot exchange rate, it cost 1.45%. I tried using my US bank but couldn't work out an online method that works.

Aura Venture Fund

The value of shares in the Aura Venture jumped from AUD 0.75 to AUD 1.28 in the June quarter. This turned our performance for June from a negative Australian Dollar return to a positive 0.84%.

The 75 cents price reflects that only 75% of the capital was called at that point. Since then there was a further 10 cents call. This big increase moves this investment from a losing investment to our 7th best of all time in dollar terms. And the gains are tax-free. Of course, all such valuations are somewhat theoretical until they actually exit the investments, but it makes me feel better about this investment and my commitment to invest in their next fund. On the other hand, the portfolio value was upvalued based on the announced acquisition of one investee company at around 2 times the entry price and a funding round at another that reflected a valuation 109% premium over the fund's entry point.

Adjusting the Target Portfolio

Given the continued underperformance of managed futures, I think I am going to again lower my allocation to this asset class to 5% from 10%. I've never gotten above 5% in managed futures funds anyway. In place of this, I could raise the allocation to real estate to 15% or raise both real estate and gold to 12.5%. Or is there something else I should allocate capital to?

Investing During the Pandemic

Financial Samurai's blogpost got me wondering how much I had taken advantage of the decline in asset prices earlier this year to add to my investments. So, I put together a table of all my exchange traded investments that aren't bonds plus the APSEC fund I recently invested in.  Not included are bonds, other unlisted funds such as Winton Global Alpha,  Aura Venture Capital, our Colonial First State Funds, the Everest Fund that recently wound up, and all our superannuation funds. The idea is to capture where I have made deliberate rather than automatic investments. 

The table presents snapshots on 1 February, before the pandemic had effects in Western countries, and today. The number of shares held is self-explanatory. Investment is the net cash invested in that investment. So, making an investment increases the number and withdrawal reduces it, but dividends and distributions that aren't re-invested also reduce it. All the numbers are in Australian Dollars and so the numbers also declined for 3i, Boulder, China Fund, and Pershing as the Australian Dollar rose. Investment per share is the investment number divided by the number of shares.

In total, I added $334k to these investments over this period. Most of this money came from maturing bonds. There are a lot of different patterns though. I might have made a mistake in investing the most in funds that were trading at the biggest discount to net asset value rather than what turned out to be the strongest funds. I didn't invest anything in Hearts and Minds and not much in Regal. I got a lot of extra shares in Cadence and Tribeca, which is a bet that they'll do better in the future. I increased my Pengana investment mostly because I thought I needed to invest more in private equity and because the fund had been trading at a big premium to net asset value. It's partly a bet that the premium will come back.

In general though, I have been cautious investing during this period because I invested a lot in early 2008 after the initial fall in the market, only to lose big later in the year. 

July 2020 Report

The US stock market continued to rise as the US dollar fell. The Australian Dollar rose from USD 0.6884 to 0.7159. The MSCI World Index rose 5.33%, the S&P 500 5.64%. The ASX 200 only rose 0.50%. All these are total returns including dividends. We gained 1.76% in Australian Dollar terms and gained 5.82% in US Dollar terms. The target portfolio gained 1.57% in Australian Dollar terms and the HFRI hedge fund index 3.24% in US Dollar terms. So, unusually, we outperformed all benchmarks. Here is a report on the performance of investments by asset class:

The returns reported here are in currency neutral terms. Gold performed best and futures worst. Gold contributed most to the total return.

Things that worked well this month:

• Gold gained AUD 39k as the metal hit a record high. It is now our fourth best investment ever in dollar terms. Only the CFS Geared Share Fund and the Unisuper and PSS(AP) superannuation funds have made us more money.
• Tribeca was the next best performer gaining AUD 15k.

What really didn't work:

• Pengana Private Equity lost AUD 4k.
• My Virgin Australia bonds lost AUD 3k. In the coming month we'll find out how much they are really worth.

We moved further towards our long-run asset allocation. The share of private equity rose most while the shares of bonds and futures/cash fell:

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

• We participated in the Pengana Private Equity (PE1.AX) rights issue buying 18,000 shares.
• I bought AUD 50k of Australian Dollars and used 40k to reduce my margin loan at CommSec.

It was a fairly uneventful month.

 

P.S. 8th August

I just realized we hit a new high net worth in US Dollar terms this month, exceeding the previous high in December. Details are at NetworthShare Quite remarkable given the circumstances. In Australian Dollar terms we are 3% below the January high.