November 2021 Report

The MSCI World Index fell by 2.38%, the S&P 500 by 0.69%, and the ASX 200 by 0.37%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7518 to USD 0.7122 boosting Australian Dollar returns and making USD returns very negative. We gained 1.52% in Australian Dollar terms or lost 3.83% in US Dollar terms. The target portfolio gained 2.15% in Australian Dollar terms and the HFRI hedge fund index is expected to fall 0.99% in US Dollar terms. So, we under-performed the target portfolio benchmark, the two international indices, and the HFRI but outperformed the Australian index.

The record-breaking run of winning months in Australian Dollar (and currency neutral) terms continued. We haven't had a losing month since March 2020. This is a 20 months run so far. We have had several US Dollar losses in that time. This month was the 6th and worst decline. This graph shows returns since 2018 in Australian Dollar terms:

As designed we are getting less volatility on average than the MSCI index in Australian Dollar terms. This month it was up though the index was down in US Dollar terms. If you are wondering why the scale is so wide on this graph, this is the reason:

US Dollar returns are much more volatile. For Australians, holding foreign assets reduces volatility in Australian Dollar terms as the Australian Dollar tends to move with stock prices, raising the Australian Dollar value of foreign assets when stock markets decline. For Americans, holding foreign assets increases volatility... You really would need to short the US Dollar to get similar results in US Dollar terms.

Here is a report on the performance of investments by asset class (currency neutral returns):

Gold had the best performance and contributed the most to the account followed by large cap Australian stocks.

Things that worked well this month:

• Gold was the star performer. Gold started the month very strongly but then collapsed after Jay Powell was appointed for another term as Federal Reserve chair. But it then ended the month a lot ahead. We gained AUD 31k. In fact the US Dollar price of gold fell slightly but the fall in the Australian Dollar provided all the gains as we hold our gold as PMGOLD.AX. Runners up were Fortescue (FMG.AX) at AUD 12k and Regal Funds (RF1.AX) AUD 10k. The Fortescue position is relatively small. It gained 15%.
  

What really didn't work:

• Cadence Capital (CDM.AX) lost AUD 10k and Cadence Opportunities (CDO.AX) lost AUD 5k after opening above the IPO price. Despite CDO's great historic performance, the firm raised much less money than they hoped at the IPO.

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 over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 index. We are a little bit worse than the median hedge fund levered 1.6 times. 

We moved a little bit away from our desired long-run asset allocation. Private equity is the most underweight asset class and real assets the most overweight. Our actual allocation currently looks like this:

Roughly two thirds of our portfolio is in what are often considered 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 closed the small positions we had in Pengana Capital (PCG.AX) following the distribution in specie from PE1.AX and sold 10k shares of PE1 I recently bought when the stock price was below NAV.
• I bought back 4k shares of RICA.L that I sold to participate in the RF1.AX rights issue.
• I bought 36k Regal Funds (RF1.AX) shares when they announced a jump in NAV to the share price on the hope of the premium to NAV coming back. I don't plan to hold this for the long term. I've already sold 17k of them.
  
• Cadence Opportunities IPO-ed (CDO.AX). I moved the shares into Moominmama's Interactive Brokers account and planned to sell stuff there to pay down some of my CommSec margin loan. I try to keep a balance of contributions in her IB account to match money we deposited there from the mortgage redraw.
• Planning for that move, I sold 12k MOT.AX shares, an Australian private credit fund.
• But then WCM Global Long-Short (WLS.AX) announced that they have redone their accounts and now the post-tax NAV is the same as the pre-tax NAV, which is also higher. I thought it was a good opportunity to increase our holding in that fund to around a 2% position and bought 44k shares, which used up the cash in the account...
• But I did sell all our holdings of Scorpio Tankers (SBBA) and most of our Ready Capital (RCB) baby bonds in her account and bought AUD 65k helping increase our holdings of Australian Dollars and reducing US Dollars.
• I also sold our position (4k shares) in Argo Investments (ARG.AX), which was suggested by the investment review.
  
• In order to hedge some remaining foreign currency exposure and get back closer to a 50/50 Australian Dollar/Foreign Currency exposure balance, I bought one Australian Dollar futures contract.