I Was Never Paid Back My Security Deposit?!

Gradually, over time I am fixing errors in my old accounts. I want to have a reasonably accurate record of investment performance and spending over time, I find solving the mysterious errors challenging, and I get to revisit different times in my life and remember what I was doing. I focus on the months with the biggest known errors. Today, it was the turn of September 2007, the month we moved to Australia. The accounts were pretty messed up. Finally, I worked out that either I was not paid back my security deposit in the US, or I received cash. I can't find any deposit in my bank accounts from the time. It was quite a crazy time, so maybe I just forgot? Intriguingly, in some handwritten accounts from then I recorded the deposit until the end of October and then just dropped it. I didn't mention it in the monthly report on this blog. I've now recorded it as an additional USD 600 of spending in September 2007.

 

The biggest remaining error in AUD terms is AUD 500 in October 2005 and in USD terms $684 in September 2020:

The error is defined as the difference between two different ways of computing the foreign currency component of the monthly change in net worth, which should be equal. This esoteric sounding error translates one to one into income or spending incorrectly recorded or transfers out of some accounts or investments not being matched by transfers into corresponding accounts. Once there were much more significant errors than these as there usually are now at the end of the month before I fix things. 
 

Masterworks Reverses Changes to Secondary Market

I recently reported that Masterworks had redesigned their secondary market. How exactly the new market would work was unclear, but you needed to make a new phone call with them before doing any trading and it seemed that they would send you opportunities to buy shares rather than their being a market with openly posted prices. Now, they have announced via email that they are reversing these changes:

"Hi everyone,

We recently announced changes to how secondary market trading works on Masterworks. We didn't get this one right, and we're sorry for the confusion. Based on your feedback, we've reversed or cancelled those planned changes and the secondary market is back to working the way it did before.

Our goal remains to make the secondary market more effective and user-friendly for all investors. We're continuing to work on improvements and will keep you updated as things develop.

In the meantime, if you'd like help navigating the trading platform, our secondary market advisory services are available to you. You can schedule a call to receive personalized guidance from our team here.

Thank you for your patience and your feedback."

I will take a look and see how things are going before deciding on whether to do some more trades. One of the paintings that I did buy last month has now had an exit above the price I paid, which provides some support for my approach to selecting secondary investments.
 

Tax Credit Update

I just updated my tax credits chart to include last year's tax returns and expected tax credits on this year's returns:

This doesn't include tax credits on our Self Managed Superannuation Fund's return. Three sorts of tax credits on both our tax returns are included. The most important are franking (or imputation) credits associated with Australian dividends. When a company pays Australian corporation tax they can pass on a credit for the tax paid to their shareholders. This credit gets added to the shareholders income but can also be subtracted from their tax due.* So, there is no double taxation of dividends in Australia. The second is tax withheld on foreign dividends, which can be claimed against Australian tax, and the third is the Early Stage Venture Capital Partnership credit. You get a tax offset equal to 10% of the amount invested in these partnerships (and the profits are tax free).

There are various reasons for the decline in franking credits since 2021/22.  One fund reorganized and now doesn't pay Australian tax (WCMQ.AX). Tribeca Global Resources (TGF.AX) paid a huge dividend in that year, and so on.

* If your franking credits exceed your tax liability the government sends you the difference! 

Performance Update

I stopped reporting these five year performance figures in my monthly reports, but I'm still tracking them, and I've added the target portfolio to the list of benchmarks.

The top panel in the table shows our portfolio performance over five years of monthly data in AUD and USD terms. Due to the fall in the AUD over this timeframe, the AUD performance is better. Also, AUD performance is far less volatile, which is part of our portfolio design.

The middle panel shows our performance relative to the five benchmarks and the bottom panel the performance of the five benchmarks. The benchmarks are the MSCI All Country Index (Gross, USD), the ASX 200 Index (including estimated franking credits), the HFRI hedge fund index (fund weighted), a monthly rebalanced portfolio of two Vanguard ETFs - VDBA and VDGR, and the Target Portfolio. Alpha and beta are estimated in regressions of our excess returns relative to either the US Fed or the RBA interest rate on the excess returns of the benchmark. The MSCI and HFRI benchmarks are in USD and the other three in AUD.

Of course the two equity indices are more volatile. The typical hedge fund is very conservative actually with very low volatility. In risk adjusted terms hedge funds return more than the other benchmarks, which is shown by the information ratio. 

We have positive alpha and lower "downside capture" relative to the three AUD benchmarks. Relative to the Target Portfolio we have a beta or almost one - meaning that a 1% increase in the excess return of the Target Portfolio is typically associated with a 0.97% increase in the excess return of our portfolio. But we also actually have a positive alpha, which shows that active management beyond tracking the target adds value. 1.5% p.a. is worth around AUD 100k per year. Actually, given the composition of the Target Portfolio, it is impossible to track it passively, as there aren't hedge fund or private equity ETFs. You need to pick specific funds. 

USVC

AngelList have announced a new mutual fund investing in venture capital called USVC. You can invest as little as USD 500. I have been thinking about investing in this via our SMSF. Previously, I wanted to invest in Unpopular Ventures on the AngelList platform using the SMSF but SuperGuardian, our administrator, said it wasn't allowed because of the partnership structure. Instead, we invested in Moominmama's name. This isn't a partnership, so it should be OK. It seems to be open to non-US investors despite the mutual fund structure. On the other hand, I feel I am too contrarian to be happy investing in all these US AI companies at this stage. At least 80% of the fund will be in US venture. That is why I like Unpopular Ventures because it is truly global. In retrospect I would have done much better with my investments if I had been less contrarian. But it is just this fundamental character trait. So, I try to work with it rather than against it. I feel uncomfortable going with the majority.

ASA Podcasts

Two of the partners of ASA who managed the Diversified Property Fund we are invested in have been on podcasts recently. Here are the links for Chris Aylward and Tim Slattery.

Closing US Bank Accounts

Keybank are increasing the security precautions on their bank accounts. You will need either a US phone number or a "passkey" to log in. Apparently, a virtual phone number won't work, it must be a real mobile phone. Up till now I had a virtual US number, used a friend's address as my mailing address, and used "secret questions" to log in. I tried to set up the passkey but it would only accept US government issued photo IDs. I don't understand why they are so US-centric. Don't they even have Canadian citizens as customers? Once upon a time this was an account at the globally focused HSBC. But mergers and acquisitions moved it to Keybank. This was my bank branch when it was temporarily owned by First Niagara:

So, I moved the money I had out of the accounts to Interactive Brokers. Now I need to get a USD account here in Australia to receive transfers from the US without getting terrible exchange rates. Moominmama has one at HSBC Australia. I might do that, but first I am investigating whether I can get a receiving account at OFX.

Update 4 April

In the end, I decided to go with HSBC Australia as it is a known quantity and setting up a business account with OFX seemed like it might be more complicated than what I need.

March 2026 Report

This was a down month across most assets as the Iran War intensified. On the final day of the month, US markets and gold rallied, causing a timing issue that makes our portfolio performance look relatively worse. Our overall portfolio did not perform as designed and fell as much or more than the markets generally. However, our superannuation accounts did perform relatively well. As a a result I am fairly relaxed as we continue to receive pensions from superannuation and dividends from non-superannuation investments as well as having large cash buffers. The Australian Dollar fell from USD 0.7116 to USD 0.6880 meaning that USD investment returns are worse than AUD investment returns. Here is the performance of our benchmarks (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -7.13%

S&P 500: -4.98%

HFRI Hedge Fund Index (forecast): -1.68%

Australian Dollar Benchmarks

ASX 200: -6.87%

Target Portfolio (forecast): -2.58%

Australian 60/40 benchmark: -4.64%

In Australian Dollar terms we lost 6.28% and in US Dollar terms we lost 9.39%. So we narrowly beat the ASX 200 but underperformed all other benchmarks. In dollar terms it was our worst month ever. We lost AUD 448k. The previous worst month was March 2020 when we were down AUD 316k. In USD terms we were down 476k vs. 331k during the COVID crash. The USD number is larger than the AUD in both cases because the Australian Dollar fell.

On the other hand, our SMSF lost 2.94%. Unisuper lost 2.68% and PSS(AP) 3.16%. So, we outperformed one of our superannuation benchmarks.

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. Hedge funds were the worst performer and the greatest detractor. Real assets performed least bad and detracted the least.

Things that worked well this month:

• Only six investments gained money with the Winton Global Alpha fund gaining the most at AUD 5k.

What really didn't work:

• Twelve investments lost more than AUD 10k and four lost more than AUD 50k! These were the L1 Global Long-Short Fund (GLS.AX), Tribeca Global Resources (TGF.AX), 3i (III.L), and gold.

We moved a little towards our target allocation. Our actual allocation currently looks like this:

 

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

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly pension payments from both Unisuper and our SMSF totalling AUD 5,150 per month. I was less active than recently in the market, making the following investment and trade moves this month:

• I transferred USD 5,000 to Masterworks to buy shares of paintings on the secondary market just before they decided to shut down that market in its current form.
• I bought 5,000 shares of each of CD3.AX and MOT.AX in our SMSF.
• I bought 5,000 shares of Cadence Opportunities (CDO.AX) and 1,000 shares of the ASX 200 ETF, IOZ.AX in Moominmama's account. 
• I bought 1,000 shares of the gold ETF, PMGOLD.AX, in my account. 

Here are the income and spending accounts * for this month:

Other income includes Moominmama's salary and employer superannuation contributions and totalled AUD 4k. Spending was down to AUD 8k, which is what I'd expect in months without school fees. This number does not include our mortgage payments, which are regarded here as saving and investment costs. Dissaving amounted to AUD 4k, well within the 4% rule limit. However, we lost AUD 438k investing. As I noted a week ago, most of this was in non-retirement accounts: -358k, with "only" AUD 80k lost in retirement accounts. As a result of all this, net worth decreased by AUD 440k to AUD 8.152 million.

* Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey shaded rows are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, and net tax returns. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends and imputed tax on industry superannuation returns and and actual SMSF tax. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances.