Update to Target Portfolio

It's time to update the target portfolio again. The last time I posted about this was here I think. The main change is that it is getting harder to find good quality accessible hedge funds. Our allocation to Pershing Square Holdings (PSH.L) is 6.3% of net worth, so I don't really want to increase that. Regal Investment Fund (RF1.AX) keeps reducing the share of hedge funds in their allocation. Tribeca Global Resources (TGF.AX) and to some degree Cadence Opportunities(CDO.AX) have been poor performers. The L1 Long-Short Fund (LSF.AX) is a possibility, as it has outperformed RF1 over 5 years. It didn't perform well in 2023 and 2024, but is doing well so far in 2025.

Also, managed futures have done poorly in the latest crisis, though often they perform better after a crisis. So, we are cutting allocations to these asset classes and increasing the allocation to long-only shares. This also reflects that I am planning on allocating more to our employer superannuation funds - Unisuper and PSS(AP). We also suddenly have a lot of cash. Reasons for these two things will come in a later post.

The following does not include cash in our regular bank accounts, which is around 3% of total assets currently. 

At the top level 60% is allocated to equity and 40% to other.

Equity: 27.5% long-only, 20% private equity, 12.5% hedge funds. 

Long-only: 10% Australian large cap, 5% Australian small cap, 8% US, 4.5% ROW.

Private equity: 10% venture, 10% buyout, SPACs etc.

We will try to balance private equity and hedge funds between Australian and foreign too.

Other: 15% real assets (real estate, art etc.), 10% gold, 7.5% futures (managed futures, bitcoin, direct futures, cash in trading accounts), 7.5% fixed income (bonds and private credit). 

At the moment we are overweight gold, cash (classified as futures), and private equity, and underweight the other asset classes.

March 2025 Report

March was a second down month in a row. The Australian Dollar rose from USD 0.6208 to USD 0.6240 meaning that USD investment returns are a bit better than AUD investment returns. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -3.90%

S&P 500: -5.63%

HFRI Hedge Fund Index: -0.91% (forecast)

Australian Dollar Benchmarks

ASX 200: -3.12%

Target Portfolio: -2.04% (forecast - depends on HFRI result)

Australian 60/40 benchmark: -2.45%

We lost 3.20% in Australian Dollar terms or 2.72% in US Dollar terms. So we out-performed the international stock indices, roughly matched the ASX 200 but underperformed HFRI and the target and 60/40 benchmarks. The SMSF lost 3.94%. Better than the previous month but still bad.

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

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. All asset classes lost money apart from gold, which gained 7.4% in AUD terms. Australian small cap was the worst loser, down 16.5%.

Things that worked well this month:

• Only gold gained more than AUD 10k. It was up AUD 48k.

What really didn't work:

• Eight investments lost more than AUD 10k. The worst was Pershing Square Holdings (PSH.L) down AUD 53k.

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 the same statistics for three indices. The middle block gives our performance relative to the indices. 

Because these are measured from the pandemic crash bottom in March 2020 the numbers have changed significantly from last month. Both our performance and that of the benchmarks jumped strongly. But the ASX performance was particularly strong and we now underperform the index. We still have much lower volatility, resulting in a Sharpe ratio of 1.24 vs. 0.98. Our alpha relative to the ASX200 fell to 3.65% (from 4.48%) with a beta of only 0.49. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is three percentage points lower.

We moved away from our target allocation in large part due to the switch out of TIAA Real Estate but also due to losses at Pershing Square and other hedge funds. 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 superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made quite a lot of additional moves this month:

• I did a trade in shares of Metrics Income Opportunities Fund (MOT.AX). Buying 15k shares for a couple of days generating around AUD 1,400 in profit.
• I sold 50k shares of URF.AX (US residential real estate fund) to fund the trade. Wilson Asset Management (via WAR.AX) exited this fund, thinking that the potentially gain going forward was not that great. We still have 150k shares.
• I bought 16k shares of CD3.AX (private equity) with the proceeds of these first two moves. It is trading very far below NAV.
• I sold 17k shares of TGF.AX (Tribeca Global Resources) and bought 5k shares of Regal Partners (RPL.AX). That has not been a good move so far.  
• I did a couple of trades in Bitcoin futures for about a breakeven.
• I started a trade in James Hardie (JHX.AX) shares. It's not gone well so far. 
• I did some tax loss harvesting trades, selling in some names and buying in others. That resulted in a net sale of around 3k Cadence Opportunity Fund (CDO.AX) shares.
• I switched all my holding of TIAA Real Estate to CREF Social Choice (a 60/40 balanced fund) in my US retirement account. From the perspective of April, this was not a good move!