Platinum Capital Announces Strategic Review

Platinum Capital is a closed end international hedge fund listed on the ASX, which I have invested in for a very long time. In the past, I gained by trading when the fund traded above or below net asset value. But since the pandemic started it seems to have been in a permanent slump. Currently, the share price is 25 cents below the NAV. The underlying performance of the fund has also been relatively poor for a long time. Now, Platinum has announced a strategic review that could include converting to an open ended fund. The latter would allow redemption at NAV. I support this idea. I might even buy more of the fund in anticipation.

P.S. 11:35am

The stock has jumped 7 cents on the news, but there is still 17 cents to go to reach the NAV, so I bought 25k shares in the SMSF.

Bitcoin vs. the MSCI Index

 

The chart shows Bitcoin (blue) and the MSCI World Index (red) on two different scales. Major cycles in Bitcoin appear quite closely related to those in the stock market. Formal analysis shows that in recent years, Bitcoin has a beta of about 2 to the market but also a very high alpha and also of course a lot of extra volatility. The relationship of the price of Bitcoin to a 4 year cycle around halvings could just be coincidence. However, the high alpha shows that there is a strong upward trend that is uncorrelated to the stock market. Economic theory would show that the price of Bitcoin is mainly demand driven. The rewards that Bitcoin miners get drive the number of miners rather than mining costs driving the price of Bitcoin. For the price to continue to rise we need to have increasing demand. The recent introduction of ETFs is an example of that.

New Investment: Bendigo Bank Hybrid

Following on from yesterday's post, I did some research on Australian Bank Hybrids. Essentially, a hybrid is a convertible bond. At a certain date it may be converted into shares of the issuer. The ratio is not set up front but is based on the share price at the conversion. In the meantime, you are paid a floating interest rate that is a fixed margin above the market interest rate. As a result, there is little price risk if everything goes well. However, if the issuer gets into financial trouble the value of the bonds can be reduced or in theory go to zero, like any other corporate bond.

I thought about an offering from Judo Bank. The bank is new but is making money and its credit rating was recently upgraded, but Interactive Brokers didn't list it. The next best yield-wise and with a better credit rating was from Bendigo Bank. So I bought 350 shares of BENPI.AX.

New Investment: Putnam BDC Income ETF

I just bought 1,000 shares of the Putnam BDC Income ETF. This is an actively managed ETF that invests in US business development companies. These are basically private credit lenders. The dividend yield is 9.19%, which is high, but lower than many BDCs. I am thinking of this as an enhanced cash investment (though formally I am listing it under US stocks) and so I wanted to avoid the idiosyncratic risks of individual BDCs. I learnt about this investment from Armchair Income. I did think of investing in the KKR BDC, FSK.

This is what I did with much of the cash from selling The China Fund. As it is in our SMSF, only 15% tax applies to the income. I also have Australian Dollar cash in the fund. I didn't want to convert to US Dollars at this low exchange rate and so will research bank hybrids to invest in.

Futures Trading Disaster

I really messed up with bitcoin futures positions and lost a bunch of money. The triangle didn't work out. I really shouldn't trade futures directionally, I think. They give me anxiety that holding stocks does not. It makes no sense but that is the way it is. So then I trade badly. I closed the positions I had, probably at the bottom of the market for a big loss because I couldn't take it any longer. I still have ETF positions. But I feel so much calmer about those. Crazy. I know that I can't handle this sort of trading holding positions overnight but still I do it. You would think I would have learned this, but somehow I am still optimistic that it will work out.

I am following this dude closely on Youtube:

Elliott Wave Triangle in CME Bitcoin Futures

I'm not big on this sort of technical analysis and especially Elliott Wave but it is amazing how the CME Bitcoin Futures just touched the line drawn connecting the previous two recent lows forming a perfect Elliott Wave triangle:

Hopefully, it will hold with the halving this week...

P.S. 16 April

The low at E was overshot during the US trading session, but this often happens in these formations. As the low of C was not exceeded the triangle is till valid if you believe the theory. Downward pressure is coming from both the general "risk-off" mood in the financial markets and prior to previous halvings there was also weakness before the event and then a bull market following. Also, Anthony Pompliano points out that Americans have to pay their taxes by today. So, they may be selling Bitcoin to get the cash for their taxes. But the price of bitcoin apparently does need to be higher than this post-halving for miners to breakeven.

Switched Remainder of CREF Social Choice to TIAA Real Estate

In January, I switched about half my CREF Social Choice (a 60/40 balanced fund) holding in my US 403b account into TIAA Real Estate. It was a bit early, but now I have switched the remainder. Here is a chart of the monthly returns for the TIAA Real Estate Fund and a twelve month moving average:

I had previously switched into Social Choice during 2022 at the previous peak on this chart.

Another Tweak to the Target Asset Allocation

To reflect my changing priorities I am raising the benchmark's futures allocation to 15% and reducing the hedge fund allocation to 15% of gross assets. This means that the allocation to equities (including private equity and hedge funds) is now down to 55% from 60%.

APSEC Update

I invested in the APSEC hedge fund back in 2020 just after they outperformed strongly in the COVID19 crash. They have managed to about match the ASX 200 over time with somewhat lower volatility:

They tend to outperform in bear markets and under-perform in bull markets. Since investing, I have only gotten a 5.9% internal rate of return, which is below average. The median IRR of my current investments is 9%. I would have done better by investing more in the Aspect Diversified Futures Fund instead, which has similar hedging properties, where I have had a 22% IRR. We have 2.47% of net worth in the fund all of it within the SMSF. I submitted a redemption notice for all of our holding today.

Gold Hits New Australian Dollar High

Gold just overtook Unisuper to become our most profitable (in absolute dollar terms) investment ever.

Chart shows price of gold in Australian Dollars for roughly 1/100 of a ounce. I say roughly, because actually this is the PMGOLD ETF that now has some small management fee. In earlier years they withdrew units from each holder to pay the management fee so it exactly tracked the gold price.

... and The China Fund

Also sold out of The China Fund (CHN) at a huge loss for this account (SMSF) though we only lost a little (USD -1.7k) in the long-term as we previously had positions in other accounts that did well. Should have gotten out a long time ago, of course. Internal rate of return to date was -0.75%.

Sold Berkshire Hathaway

I sold my 100 shares of BRK/B. The last earnings report raised questions about the performance of several major Berkshire businesses. My target asset allocation said I could reduce my exposure to US shares and I wanted to do something else with the money. Yeah, I bought more bitcoin. Munger would have been horrified.

Total profit on Berkshire to date was USD 18k and the internal rate of return was 11.09%.

March 2024 Report

This was a very good month investment-wise. Not all numbers are in, we still might get updates from more illiquid investments. But based on what we have, we had our best investment result ever in terms of absolute Australian Dollars (rather than percentage return) at AUD 228k. It's beginning to feel like 2021 again:

We are approaching having made AUD 3 million in gross returns by investing. In 2020-2021, we had a record-breaking run of 17 positive months ending in December 2021. So far we have only had 5 positive months in a row, but the longest positive run we had in the intervening two years was only two months. So, this feels very different than the last two years.

In March, the Australian Dollar rose slightly from USD 0.6504 to USD 0.6514. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 3.20%

S&P 500: 3.22%

HFRI Hedge Fund Index: 1.53% (forecast)

Australian Dollar Indices

ASX 200: 3.57%

Target Portfolio: 2.76% (forecast)

Australian 60/40 benchmark: 2.41%. 

We gained 4.44% in Australian Dollar terms or 4.60% in US Dollar terms. So, we beat all benchmarks. Shocking 😀.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral returns as the rate of return on gross assets and so are lower than the Australian Dollar returns on net assets mentioned above. Returns were positive for all asset classes. Gold had the highest rate of return and made the largest contribution to returns followed by futures in terms of contribution and Australian small caps in terms of rate of return.

Things that worked well this month:

• Seven investments made more than AUD 10k each: Gold (48k), Bitcoin (28k), 3i (III.L, 26k), Regal Funds (RF1.AX, 23k), Pershing Square Holdings (PSH.L, 14k), Unisuper (11k), and CFS Developing Companies (11k).
  

What really didn't work: 

• Unpopular Ventures had the worst result (-5k) as one of our investments with them went bust.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Compared to the ASX200 we have a lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.97 vs. 0.72. But as we optimise for Australian Dollar performance, our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. Well, we do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.3% with a beta of only 0.45. 

The SMSF continued to outperform both its benchmark funds after under-performing for a few months:

We are fairly close to our target allocation. We are underweight private equity and hedge funds and overweight real assets and futures. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer contributions to superannuation every two weeks. We are now contributing USD 10k each quarter to Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. It was quite a busy month:

• I sold 1,000 shares of the Perth Mint gold ETF (PMGOLD.AX). This helped fund capital calls from Unpopular Ventures and Aura totalling AUD 40k.
  
• I sold 3,000 shares of the WCM Global Quality ETF (WCMQ.AX).
• I sold 20,000 shares of Cadence Capital (CDM.AX). We no longer hold this in our SMSF, but do hold plenty of shares in other accounts.
• I sold 5,000 shares of Platinum Capital (PMC.AX).
• I bought 750 shares of Fidelity's bitcoin ETF (FBTC). This was funded by the sales of stock funds listed above.
• I also did some successful day-trading of Bitcoin and gold futures. I feel like I am finally getting this trading thing :)
  
• I sold 7,794 shares of Regal Funds (RF1.AX).

Trip to Sunshine Coast

As Ramit's Conscious Spending Plan says that we aren't doing enough "guilt-free spending", I booked a trip to Queensland for when the weather will be colder here 😀. Took under 2 hours to decide on location, book an apartment, book flights, and book a car. Pretty efficient I think. Total bill for a family of four: AUD 5,350. I think those are all the additional costs compared to doing similar activities based at home on a staycation. Not sure I am "guilt-free", though! Now we could have picked cheaper options throughout. But we got an apartment on the beachfront with a sea view and a swimming pool, a car that will definitely fit our luggage and extra legroom on the flight (front row) at convenient times. We got the cheapest available price on Jetstar on the way back.

One interesting thing is that I thought about using my Qantas Frequent Flyer points, but my160k points were only worth about AUD 1,000. Apparently, they are worth more for international flights, so I kept them for now. Will probably find I'm not allowed to use them when I next try to book an international flight.