Saturday, September 04, 2021

August 2021 Report

It was another month of increases in world stock markets. The MSCI World Index rose 2.53%, the S&P 500 by 3.04%, and the ASX 200 rose 2.75%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7350 to USD 0.7314 We gained 0.51% in Australian Dollar terms or  0.01% in US Dollar terms. The target portfolio is expected to have gained 1.89% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.23% in US Dollar terms. So, we underperformed all benchmarks, which is exactly opposite to what happened last month. The most important reasons for underperformance were losses in Tribeca Global Resources (TGF.AX), Fortescue Metals (FMG.AX), and Hearts and Minds (HM1.AX). Here is a report on the performance of investments by asset class (currency neutral returns):

Hedge funds had the best performance and contributed the most to performance despite the bad performance of TGF.AX. Large cap Australia stocks were the only asset class with a negative performance.

Things that worked well this month:
  • Cadence Capital (CDM.AX) was the top performer, gaining AUD 16k (or 9%) with good performances from Pershing Square Holdings (PSH.L), Regal Funds (RF1.AX), Unisuper, PSSAP etc.
What really didn't work:
  • The worst performers were Tribeca Global Resources (-AUD 22k or -10%), Fortescue Metals (-AUD 16k, -17%), and Hearts and Minds (-AUD 11k, -5%). The latter two have regained most of their losses so far in September.

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We show the desired asymmetric capture and positive alpha against the ASX200 index. We are doing a bit worse than the median hedge fund levered 1.6 times.  

In Australian Dollar terms we haven't had a losing month since March 2020, which must be a record. It feels like this can't continue, but on the other hand, Central Banks continue to print money. I long projected that we would reach a net worth of AUD 6 million by my 60th birthday. We are now at AUD 5.7 million and the projection has gone up to AUD 8 million. This seems pretty crazy. But the way house prices are going and the probability that we might want to move means that I will continue to work full time for now. As long as my job doesn't stop us doing something else we want to do, I might as well do it, I think.

We moved closer to our desired long-run asset allocation by buying RF1 shares (a listed hedge fund) and investing in pre-IPO company IPS (see below). Private equity is the asset class that is now furthest from its target allocation (3.6% of total assets too little). This problem will solve itself as Aura Venture Fund II calls more capital. Our actual allocation now looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

  • I bought 100,000 Australian Dollars by borrowing US Dollars.
  • I invested AUD 100k in a pre-IPO company, Integrated Portfolio Solutions.
  • I bought back 46,871 shares of Regal Funds (RF1.AX) after the price fell to a lower premium to NAV. I sold 20,000 shares of MOT.AX to help fund it.
  • I bought 1,000 shares of PMGOLD.AX, a gold ETF.

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