Fixing Margin Loan Interest Rate?

A year ago, I fixed most of my CommSec margin loan at a constant rate for the year ahead. The rate I got was 7.54% compared to a variable rate of 9.4%. I just got an email from CommSec asking whether I want to fix my rate again. The fixed rate is now 9.2%, but the variable rate has only increased to 9.65%. Clearly, I made the right choice to fix my loan, but this doesn't look like a good option going forward. Instead, I will reduce my borrowing probably by selling my gold ETF holdings, or at least some of them, especially if the recent budget CGT measures are passed by Parliament. The Greens hold the balance of power, but they think that nominal gains should be taxed at ordinary income tax rates and that there should be no grandfathering, so they might yet derail things for Labor.

54 Wellington

The Liberman Family ended up liquidating their property fund as a result of developing this office building. And ASA Diversified Property Fund, which our SMSF is a unitholder of, ended up buying it for a bargain price that is much less than replacement cost.

Pabrai Funds

Monish Pabrai is a well-known value investor who is often interviewed. He recently launched an actively managed ETF: WAGN listed on NASDAQ. After watching the interview and hearing about the ETF, I was curious about his performance. I found online his investor letter from 2020. PIF2, which started in 2000, returned 15.4% per year up to 2019 compared to the S&P 500's 7.1%. This sounds good, but the fund had extreme volatility, and so its information ratio was 0.54 compared to 0.48 for the S&P 500. You might still want to invest on this basis but PIF3, which started in 2002 returned 10.3% vs 8.2% for the S&P 500 with even higher volatility and PIF4 underperformed the S&P 500 also with extreme volatility. PIF4 has continued this pattern since 2020. The mutual fund and ETF have done well since inception in 2023 but I think it is likely that this pattern of high volatility continues. So, for now, I decided not to invest.

Education Bonds

I just discovered an investment structure I had never heard of: Education Bonds. These are an Australian investment structure that is similar to investment bonds but with some twists. We have an investment bond in Little My's name at Generation Life. We used it to invest the money he inherited from my mother. 

First, I will describe an investment bond again. It is an investment that pays tax in the fund nominally at 30%. If you hold it for 10 years and then withdraw the money you don't pay any additional tax. If you withdraw it before 10 years you owe tax on the earnings at your regular tax rates but get a 30% tax offset. You can reset the 10 year term by contributing a new investment of more than 125% of the previous year's investment. Why would you want to do that? If your tax rate or a child who you made the beneficiary end up having a tax rate below 30%, you'll pay less tax then if you withdraw the money.

Most of this applies to an education bond too. These are the differences:

1. You can withdraw the contributions without tax or penalty at any time. Only the earnings are locked up for 10 years.

2. You can make a claim to pay for education expenses and withdraw earnings to do so. When you do this, you get the tax paid added onto the amount you withdraw. So, there is no tax in the fund on these withdrawals. This can be done at any time, not just after 10 years.

3. The twist is that the beneficiary whose education you are paying for is liable for tax on the earnings. Children under 18 have very high penalty tax rates (one reason we used an investment bond for Little My). So, beyond the tax-free $416 per year this really wouldn't make sense. Once they turn 18, the regular adult rates apply including the tax free threshold.

4. Here is the really interesting part: You can keep any education bills incurred since you started the education bond and claim them in a later year. So, you could claim school tuition from 2026 in 2036 say!

5. If you withdraw all your contributions and then want to withdraw earnings without valid education bills, the standard investment bond rules apply.

6. The downside is you are limited to the investment options the provider has and an additional administration fee. After all, they have to deal with all these education claims... For Australian Unity this additional fee is 0.7% p.a. 

There are only a few providers and so far Australian Unity seems most attractive. Generation Life don't offer this product.

Basically, this is a way of tax-sheltering some investment income in a similar way to income splitting through a family trust. But it is much more restrictive on investments and possibly has higher fees (our SMSF pays 0.3% p.a.). You are only really going to be directly paying for higher education expenses using this.

For someone in my position, it might make sense after you have maxed out your tax free super pension and you are already above the tax-free bracket of income tax on your non-super earnings, which is true in my case. The problem is that actually trying to reclaim all the children's private school fees during the 3 or so years they are in Uni would push them into the 30% marginal tax bracket, which is probably where I will be myself. If they are working part time they might already use up the tax free allowance (currently AUD 18.2k), which would make the tax savings small. And this is assuming they go to Uni. With these considerations, the 0.7% annual fee, and limited investment options, I am undecided if this is worthwhile.

 

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.
 

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.

Masterworks "Redesigns" Secondary Market

I recently invested USD 5,000 in paintings I bought at large discounts on the Masterworks secondary market. I was thinking to do more such purchases now and then and gradually build up a more diversified portfolio. I targeted offerings that had appreciated since their initial offering and so were more likely to have a near term exit, which were selling at large discounts - up to 50% of appraised value.

Bracco di Ferro by Basquiat

Masterworks was only allowing buy orders to be placed for one day at a time. I think the idea was to force buyers to buy at the offer price and so maybe push prices up. But the result was that someone casually looking at the site saw piles of sell orders and no buy orders and would conclude that this was not a good investment. 

Then today we got an email from Masterworks saying that in future sellers will need to discuss their planned sales with Masterworks and buyers will be offered curated offers. You need to sign a new agreement to participate. From my reading of the agreement, they will charge an extra 2% p.a. AUM fee for participating. I've emailed the firm for clarification on that. If so, I won't participate. I am guessing they plan to buy shares at a discount from sellers and then sell them at a marked up price to buyers.

Recently, I talked to their sales guy who offered me investments in funds. These funds consist of shares in paintings which Masterworks has received as annual management fees. They are offered at a 10% discount to appraised value. The minimum investment for one fund was USD 100k and for the other 25k. I told him I preferred to buy in the secondary market. I guess a bunch of people have told them that. Now maybe the 25k fund looks a little attractive but it also includes paintings that are trading way below their initial offering price that I think might never be exited.

P.S. 16 March 2026

I got an email back from Masterworks saying that they didn't intend to add an additional 2% fee and they will change the wording of the agreement.

Switching to Gold in Little My's Portfolio

 

Little My (our younger child) has an investment bond managed by Generation Life. Now and then I decide to tweak the portfolio allocation. I just noticed that iShares Physical Gold is now an option. So, I am switching from Magellan Global (soon to be managed by L1 instead) to gold. Gold is in the target portfolio and my own portfolio and we already have more than 1/3 of the portfolio managed by L1. So this is the new allocation:

iShares Physical Gold: 9%

Atlas Infrastructure: 8%

L1 Long Short Fund: 35%

Generation Life Tax Effective Australian Shares: 20%

Dimensional 70/30 World Allocation: 28% 

So, in terms of asset classes:

Australian Shares: 30%

International Shares: 10% 

Hedge Funds: 35% 

Credit 8% 

Real Assets: 8%

Gold: 9%

The gold position is not quite one ounce (shown in the picture above). 

The portfolio is more aggressive than the target portfolio, which makes sense as Little My is very young. 

Alerian Master Limited Partnership ETF

I made a small investment of 500 shares of this ETF in the SMSF. It is an ETF of master limited partnerships, which are entities owning pipelines in the US. So, this counts towards my real assets allocation. It pays a high dividend of 7.8%, so it contributes towards our income investments that are intended to fund the SMSF pension. In recent years, since the pandemic it has performed well with a relatively low beta and high alpha to the stock market. So, it counts towards my "passive alpha" category as well. In the long-term though it has tracked the price of oil to quite a large degree and so isn't a set and forget investment. But I expect that in the near future energy demand to generate electricity for AI will be growing.

Bad Timing Switching Funds

In May last year, I switched from the Aspect Diversified Futures Fund to the Acadian Global Long Short Fund in our SMSF.* Since then Aspect has done very well:

I sold almost right at the bottom. It has gained more than 25% since then! What has Acadian done? It has risen a bit and then fallen:

Maybe a 3% gain :( The longer term performance has been really good though. If I had stuck to our target allocation, I would have kept Aspect and done better. I'm not going to switch back now. It's just as likely that Aspect falls again and Acadian continues its long term trajectory.

* The linked post talks about switching from Generation Global to Acadian. That was in another account. We switched to Acadian in two accounts. Generation rose about 12% after the switch but has now nose-dived to be down about 4%. So, that switch made sense.

ZIM

 

I bought 2000 shares of ZIM. A takeover was announced by Hapag-Lloyd, but the shares are trading about 25% the acquisition price based on the fear that the Israeli government wouldn't approve the deal and that the workers have announced a strike over job losses. But part of the company will be carved out and sold to an Israeli private equity firm to assuage this concern. Presumably, some sweetener will be found for the workers. In the meantime, the company will hopefully continue to pay its very high dividends. The price has been in the doldrums because shipping rates are currently low and presumably there is geopolitical risk. Potentially, the EU could be concerned about the merger. Well, this is just a 1% speculative position.

Update 19 Feb 26

Well that didn't last long. I saw this article and immediately dumped my position for a USD 333 profit. It's hard to believe that Hapag-Lloyd didn't discuss this with the Israeli government before structuring this deal. But I don't want to risk losing money on this.

How Closed-End Funds Should Trade in Theory

An interesting post from Financial Samurai or how closed-end funds trade. A closed-end fund is one that trades on a stock exchange but has a fixed number of shares on a day to day basis.* They may occasionally do additional share issues, or reinvest dividends, or even buy back shares, but they don't buy and sell shares continuously to keep the market price at the net asset value or NAV. ETFs, by contrast, do continually create or redeem new shares to keep the market price close to NAV. I posted a comment about where the equilibrium price of a closed-end fund should be that I thought was worth its own post here.

In theory, if the fund manager grows the NAV of the fund with distributions reinvested faster than the average stock market rate of return (for assets with similar beta), then a closed end fund should trade higher than NAV and vice versa. 

This should be the equilibrium price, so that investors don’t get a free lunch of a higher than average return or conversely a worse than average return. If the average fund manager performs the same as the market before fees then on average after fees managers will under-perform the market and so the typical closed end fund will trade at a discount to NAV.

Of course, actual prices often deviate from this equilibrium for a long time! Pershing Square Holdings, which trades on the LSE, is a classic case. It has either outperformed or matched S&P 500 performance over the last few years while investing mainly in large cap US stocks, but trades at a massive discount to NAV. As an investor, one of my reasons for investing was this large discount. We’ve experienced good returns but not much closing of the discount. In fact the discount today is the same as it was in 2021 when we finished buying our current position. The market price is 25% below NAV! Our internal rate of return has been 20%, which is clearly better than the stock market average. The S&P 500 has returned 15% p.a. over the last ten years or 14% over the last five. So, it is crazy that the discount hasn't at least narrowed.

* Sometimes people refer to unlisted private equity funds that raise a given amount of money and then invest it as closed end funds too.

Concentration in the Mag 7 (Updated 27 February)

What is our exposure to the Mag 7? This came up in recent discussions. People are worried about being overly concentrated in a few maybe over-valued companies. I can't put an exact number on our exposure, as Unisuper and PSS(AP) do not publish their asset allocation at the individual stock level and other funds also have partial or no information. But we can estimate it. I'll go through the calculation, fund by fund, in the following.

Unisuper: This is Moominpapa's employer superannuation fund. I estimate that 22% of the fund is in US stocks. The share of the Mag 7 in the S&P 500 is 34%. Without further information, I assume this share applies here. 11.6% of net worth is in Unisuper. Multiplying these three numbers together gives 0.87% of net worth.

PSS(AP): This is Moominmama's employer superannuation fund. I estimate that 13% of this fund is in US stocks and 8.5% of net worth is in the fund. Therefore, 0.38% of net worth is in the Mag 7 here.

CREF Social Choice: This is the main fund in Moominpapa's US retirement account. I estimate that 42% is in US stocks and 3% of net worth is in this fund. This fund, therefore, contributes 0.43% of net worth exposure to the Mag 7.

WCM Global Quality (WCMQ.AX): In their latest portfolio disclosure, they report holdings of Microsoft, Amazon, and Nvidia. Total exposure is 9.6%. WCMQ is 1.5% of our net worth. 1.5%*15.55% = 0.14%.

Hearts and Minds (HM1.AX): Again, Microsoft and Amazon are in the top 10 holdings, as is Nvidia. But we don't know how much of the portfolio either of these is. The top 10 as a whole represents 44% of total portfolio holdings. Let's guess that MSFT and AMZN are 3/10 of this. The remaining non-conference holdings are 21% of the portfolio. Let's assume that 65% of this is US stocks and Mag 7 is 34% of this. 18% of the total portfolio is then estimated to be in the Mag 7. HM1 is 1.7% of net worth. So our exposure is estimated at 0.30%.

Pershing Square Holdings (PSH.L): They hold three Mag 7 stocks–Google, Amazon, and Meta. The annual report shows total expsoure of 36.71%. We have 6.3% in PSH and so our net worth exposure is 2.3%.

Acadian Global Long Short: They provide a top 10 list of holdings, which includes all the Mag 7 apart from Tesla! The total exposure is 25.6%. I assume that they do not hold Tesla and given our portfolio exposure of 3.3%, our Mag 7 exposure is 0.84%.

L1 Global Long Short (GLS.AX): They have not published any information on portfolio allocation. Assuming that 65% is in US stocks and 34% of that is in the Mag 7, given our 4.6% allocation to GLS, our exposure would be 1.02%.

In total, we have a 6.28% net worth exposure to the Mag 7. This is very small compared to someone who followed Warren Buffett's advice to just invest in an S&P 500 index fund. Someone who invested in a 60/40 portfolio including a global index fund would have about a 14% exposure. So, it's small compared to that too. Are we under-exposed to tech stocks? Well, we have around a 10% exposure to venture capital and WCMQ's largest holding is AppLovin. So, I don't think so.

Annual Report 2025: Individual Investments

As promised, here are the individual investment results for 2025 (Australian Dollars):

Other costs and benefits like interest and fees and exchange rate gains and losses are not included here. I also don't go down to the level of the very small individual investments inside the Masterworks, Unpopular Ventures, and Domacom investments boxes.  

I also make no attempt to compute individual rates of return. My goal is to have twice as many winners as losers and to make at least twice as much on winners as I lose on losers. So, position sizing is part of the story. Based on that goal, I had more than enough winners, but only won slightly more on each winner as I lost on each loser. Without the two worst losers, I only lost $9.9k per loser. In the long term, my winning positions have gained more than five times as much as losing positions have lost. Of course, both Bitcoin and Defi Technologies gained more in the previous year than they lost in 2025. In the long run, these were winning investments.

Gold was the top performer this year, after coming in second last year. It was followed by two listed hedge funds and then the Aura Venture Capital Fund 2. Next came our two employer superannuation funds, each of which is 8-12% of our portfolio. The diversified Regal Investment Fund put in a good showing at 7th position. WAM Capital is a new investment I made during the April Tariff Tantrum. Australian Dollar Futures are paying off this year after being the worst performer last year. Finally in the top 10, CREF Social Choice is a balanced fund in my US retirement account (403b).

Aura VF2 Reports

The Aura VF2 venture capital fund has reported for the final quarter of calendar year 2025 and it has jumped sharply into profit.

 

I now have an IRR of 10.6%. It increased the rate of return for December to 2.5% in AUD terms or 4.5% in USD terms, which crushed all benchmarks.

Tribeca Global Resources

After several years of disappointing performance, Tribeca Global Resources (TGF.AX) has performed extremely strongly in recent months:

My investment hit a new profit high exceeding the 2022 peak. After previously giving back all the 2022 gains, this strong performance makes me wonder if I should sell now. One reason not to sell is that if I wait my capital gains tax rate should be lower next financial year (it's in my personal name). Also, there is still a big gap between NAV and the share price, which wasn't the case at the 2022 peak. Pre-tax NAV is $3.81 and post-tax $3.34 while the share price is $2.88. Will the gap close? Finally, the fundamentals supporting resources strength don't seem to be changing yet. So, I think I will hold on for now.

Update to the Target Portfolio

Time to tweak the target portfolio we use for benchmarking and asset class allocation. I am lowering the allocation to futures from 7.5% to 5% and increasing the allocation to hedge funds from 15% to 17.5%. This better reflects current reality.

Hockney Sold

Masterworks sold the Hockney painting I invested in. Profit after fees is 23% and the IRR was 6%. They are giving the option to reinvest in another paper or receive the cash. Overall, my Masterworks investments only have a 2% IRR. 

Art has been in a slump while stockmarkets have rallied in the last 3 years. Who knows if it is going to recover now? I'm not inclined to tie up the money again for an unknown period. This is especially given that I am retiring now. So, for now, I am going to withdraw any money I can from this portfolio. I have investments in nine paintings remaining.

FOMO-ing In

I have been saying no to investing in Aura's new venture capital fund when I have been asked. My reason was that I am retiring and don't want to lock capital up. With lower taxes going forward, the negative tax status of Australian venture capital investments isn't so important any more. Also, I am an investor in both their previous funds and the parent company, so that feels risky. Also, I didn't have a current wholesale investor certificate.

But then I saw an email that now is the "last call" before the "first close" and I sent them an email asking if I could invest AUD 100k instead of the usual AUD 250k minimum. They approved right away and I just completed the application form. This is an investment of about 1.5% of net worth, which will be called over several years, so with this lower number it doesn't seem as risky or impose as large cash flow requirements. The fund plans to invest in 25 companies if the target amount is raised. So, this would only be AUD 4k per start-up. At Aura VF 2 I have around AUD 25k exposure to each start-up. And I now have a wholesale certificate again. Also, I have been thinking recently that we can cover our current cash flow requirements with just AUD 1.5 million (8% yield) to AUD 3 million (4% yield) income-oriented investments and invest the other half or more of our net worth in long term growth investments to compensate for inflation and maybe actually grow our net worth. 

But in the end, it's really FOMO.

Aura Pre-IPO Capital Raise

I am trying to get in on this capital raise. Some details still need ironing out. I have investments in two of their venture capital funds. Valuation relative to revenue and EBITDA seems similar to Regal Partners, which I am a shareholder of.