Moominpapa's Taxes 2023-24

I did our taxes earlier this year as Aura sent me a tax statement earlier than in previous years. Here is a summary of my taxes. You can find previous year's taxes here. To make things clearer, I reclassify a few items compared to the actual tax form (such as foreign source income deductions). Of course, everything is in Australian Dollars. 

Overall, gross income fell 6%, while deductions rose 5%, resulting in a fall in net income of 8%.

On the income side, Australian dividends, franked distributions from managed funds, and foreign source income were all down strongly. Tribeca Global Resources paid a much smaller dividend this year, some of my other share holdings were reduced slightly to make new investments, and I didn't get dividends from Fortescue (sold) or Pendal (acquired). I also reduced my holding of 3i (III.L) and so got reduced foreign source income.

My salary still dominates my income sources but again only increased by 3%. Net capital gain is zero due to carryover losses from last year. I am carrying forward $41k in capital losses to next year. Rising interest rates increased deductions, while charitable giving was up 33% after falling last year.

Gross tax is computed by applying the rates in the tax table to the net income. In Australia, you don't enter the tax due in your tax return, but I like to compute it so that I know how big or small my refund will likely be. Franking credits (from Australian dividends), foreign tax paid, and the Early Stage Venture Capital (ESVCLP) offset are all deducted from gross tax to arrive at the tax assessment. ESVCLP was up due to more capital calls from Aura.

Estimated assessed tax fell because of the reduced net income and larger offsets this year.

I estimate that I will pay 24% of net income in tax. Tax was withheld on my salary at an average rate of 32%. I already paid $7,996 in tax installments and so estimate that I should get a refund of $16,942! Let's see.

September 2022 Report

In September the stock markets again fell sharply and the US Dollar rose. The MSCI World Index (USD gross) lost 9.53%, the S&P 500 9.21% in USD terms, and the ASX 200 6.14% in AUD terms. All these are total returns including dividends. The Australian Dollar fell from USD 0.6855 to USD 0.6399 and even fell against the Pound. We lost 1.74% in Australian Dollar terms or 8.28% in US Dollar terms. The target portfolio lost 1.28% in Australian Dollar terms and the HFRI hedge fund index lost 2.27% in US Dollar terms. So, we out-performed the stock market indices but not these alternative benchmarks.

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. I have added in the contributions of leverage and other costs and the Australian Dollar to the AUD net worth return.

Only gold had a positive return and that was only because of the fall in the Australian Dollar - we hold our gold mostly in the ASX listed PMGOLD ETF. The Australian Dollar was the biggest  positive contributor to performance measured in Australian Dollars and hedge funds were the biggest detractor, though Rest of World Stocks had the worst rate of return.

Things that worked well this month:

• After gold (AUD 13k), Regal Funds (RF1.AX) gained 10k, Winton Global Alpha 9k, and Aura VF2 8k.
  

What really didn't work:

• Tribeca Global Resources lost AUD 28k, followed by Australian Dollar Futures lost 21k, and Unisuper at-17k.
  

The investment performance statistics for the last five years are: 

The first three 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. The final three rows report the performance of the three indices themselves. We show the desired asymmetric capture and positive alpha against the ASX200 but not against the hedge fund index nor the MSCI. Compared to the ASX200, our rate of return has been almost the same, but our volatility has been almost 5% lower. We are performing almost 4% per annum worse than the average hedge fund levered 1.76 times. Hedge funds have been doing well in recent years.

We moved towards our target allocation. 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. In addition we made the following investment moves this month:

• I sold my holding of 10k Pendal shares (PDL.AX). Perpetual, which is taking over Pendal seems to continue to sink in price since the merger was announced.
• I participated in the Regal Investment Partners (RPL.AX) rights issue.
  
• I did some trading of Regal Funds (RF1.AX). It is tending to fluctuate around the NAV.
  
• I shifted another AUD 25k from Aspect Diversified Futures Wholesale to First Sentier Developing Companies on the Colonial First State platform and then sold and withdrew the rest of our holding to reduce debt.
• I sold 20k Cadence (CDM.AX) shares to increase cash in our SMSF brokerage account.
  
• I did a quick Australian Dollar Futures trade, which didn't work out well.
  

July 2022 Report

July was a reversal of June. The S&P500 gained more than it lost in the previous month and gold fell more than it rose in the previous month. Investors seem to think that the Federal Reserve will raise interest rates by less than originally expected. The MSCI World Index (USD gross) rose by 7.02%, the S&P 500 by 9.22%, and the ASX 200 by 5.77%. All these are total returns including dividends. The Australian Dollar rose from USD 0.6900 to USD 0.6968 increasing Australian Dollar returns and reducing USD returns. We gained 4.11% in Australian Dollar terms or 5.13% in US Dollar terms. The target portfolio gained 3.75% in Australian Dollar terms and the HFRI hedge fund index was up only 1.65% in US Dollar terms. So, we out-performed the latter two benchmarks but under-performed the stock indices. The AUD return for the month is more than what would be expected historically given the ASX 200 performance for the month.

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. I have for the first time added in the contributions of leverage and the Australian Dollar to the AUD net worth return.

Hedge funds were the biggest contributor to performance while Australian small cap had the best return. Gold was the worst performer and a significant detractor. Rest of the World stocks had a relatively poor performance because of our weighting to the China Fund.

Things that worked well this month:

• Regal Funds was the best performer (AUD 25k) followed by Pershing Square Holdings (18k), Tribeca Global Resources (18k), and another seven investments that gained more than AUD 10k.
  

What really didn't work:

• Gold was the worst performer (-24k) followed by the China Fund (-9k) and Winton Global Alpha (-5k). Only six investments lost money while 29 gained.
  

The investment performance statistics for the last five years are: 

The first three 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. This month, I have added another three rows to report the performance of the three indices themselves. We show the desired asymmetric capture and positive alpha against the ASX200 but not against the hedge fund index and not really against the MSCI. Compared to the ASX200 our rate of return has only been 0.6% lower but our volatility has been 5% lower.

We are performing 2% per annum worse than the average hedge fund levered 1.7 times. I'm not sure why this alpha has deteriorated sharply recently. July 2017, which was dropped from the estimation this month, was a good month for hedge funds but both June and July 2017 were particularly good months for us in USD terms as the Australian Dollar rose sharply.

We moved a bit away from our target allocation. This was mainly because of the redemption of Pershing Square Tontine Holdings that reduced our private equity allocation. Our actual allocation currently looks like this:

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. In addition we made the following investment moves this month:

• I sold 4,000 shares of WAM Leaders to get some cash. 
• I made an AUD 20k concessional superannuation contribution for Moominmama. 
• We combined these to start an account at Colonial First State for the SMSF investing in Aspect Diversified Futures with an initial AUD 25k (the minimum investment for Class A shares).
• As mentioned above, PSTH returned the cash to shareholders. There is a placeholder position still in our account which might turn into SPAR warrants at some point.
• I bought a net AUD 75k, mainly with the US Dollars from PSTH.
  
• I invested around AUD 10k in 64 Devonshire Road, Rossmore, NSW.
• I bought 1,250 PMGOLD shares (12.5 ounces of gold).
• I bought 3,000 more shares in Pendal (PDL.AX), when it was announced that merger talks were back on.
  

April 2022 Report

World markets fell sharply with the MSCI World Index (USD gross) falling by 7.97%, the S&P 500 falling 8.72%, and the ASX 200 falling 0.85%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7494 to USD 0.7114 increasing Australian Dollar returns and reducing USD returns. We lost only 0.16% in Australian Dollar terms but lost 5.23% in US Dollar terms. The target portfolio lost by 2.34% in Australian Dollar terms and the HFRI hedge fund index is lost 0.93% in US Dollar terms. So, we out-performed all benchmarks apart from the HFRI index. I felt like I was losing a lot of money, but in Australian Dollar terms it wasn't that bad.

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

In a reversal of last month real assets, gold, and futures gained money, while other asset classes lost. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold rose in Australian Dollar terms, though the USD price fell. US stocks performed worst and detracted from performance most, while gold performed best and contributed most to performance.

Things that worked well this month:

• Gold gained AUD 21k, Winton Global Alpha 10k, Tribeca Global Resources (TGF.AX) 11k, and Aspect Diversified Futures 8k.
  

What really didn't work:

• Pershing Square Holdings (-22k), Australian Dollar Futures (-17k), and Hearts and Minds (HM1.AX, -11k) all lost more than AUD 10k.

Our SMSF continues to perform quite well compared to our employer superannuation funds:

They're all indexed to 1000 in April 2021.

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 and the MSCI but not against the hedge fund index. We are basically performing a bit worse than the average hedge fund levered 1.67 times. Hedge funds have been doing well recently.

I adjusted the leverage on the URF.AX investment  to roughly 3:1 in our gross asset allocation as there still seems some possibility that the wind-up deal will be voted down by the shareholders.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

70% 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. It was a busy month.

• I invested in the Unpopular Ventures rolling fund on the AngelList platform. The initial investment is USD 10k and then the same amount each quarter for eight quarters.
• Our listed investments trusts are now all in a CommSec account within the SMSF, which means I get accurate tax reporting and can subscribe to dividend reinvestment, which I did.
  
• I sold 10k shares in Pengana Private Equity (PE1.AX). These were shares in my name that I held to get accurate tax reporting, which I don't need any more. I sold at AUD 1.69 and the price is now AUD 1.49. So, that was a good move.
• I sold AUD 30k for USD and bought one more AUD futures contract, increasing AUD exposure by about 100k, which was a mistake.
  
• I withdrew AUD 25k from Domacom Investments after two crowdfunding campaigns just vaporized. 
• But I started accumulating units in another property at Domacom. It is a market garden property near the planned Badgery's Creek Airport. 60 Devonshire Road, Rossmore.
  
• I bought 12.5k WAM Leaders shares (WLE.AX).
• I invested AUD 10k in the Winton Global Alpha Fund, which has been doing well recently, for a change as I predicted. Seems futures work well in inflationary environments but not in low inflation environments. I based this opinion on this research.
• I invested AUD 10k in the Australian Unity Diversified Property Fund.
  
• I bought AUD 7k shares in Pendal as a merger arbitrage play.
• I invested in a new painting at Masterworks: "No Hopeless". I felt this might be over-valued but took the plunge anyway.
  

New Trade: Pendal

I bought a position in Pendal (PDL.AX). Yesterday, they announced that they got a takeover offer from Perpetual (PPT.AX) for the equivalent of AUD 6.23 per share. The price isn't a constant as it is about 2/3 in terms of Perpetual shares. The stock was trading around AUD 5.25 after being higher yesterday, but PPT was trading up on yesterday. Analysts say the stock is undervalued and a strong buy after falling a lot in the last year, prior to the bid. So, I didn't see  lot of downside in this. 

In other news, URF.AX is now up to AUD 0.24, 10% above the AUD 0.22 that investors are supposed to eventually receive. I can't sell as my shares are in transit from Interactive Brokers to Commonwealth Securities. They have now left Interactive Brokers, but haven't shown up yet at CommSec...

January 2021 Report

The rallies in the Australian Dollar and the stock markets continued this month. The Australian Dollar fell from USD 0.7725 to USD 0.7663. The MSCI World Index fell 0.43% and the S&P 500 by 1.01%, but the ASX 200 rose 0.93%. All these are total returns including dividends. We gained 0.59% in Australian Dollar terms or -0.22% in US Dollar terms. The target portfolio is expected to have lost 0.09% in Australian Dollar terms and the HFRI hedge fund index is expected to lose 0.24% in US Dollar terms. So, we outperformed all benchmarks apart from the ASX 200.

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

Hedge funds added the most to performance and gold detracted the most. Things that worked well this month:

• Tribeca was the best performer in dollar terms. Treasury Wine was maybe the best in percentage terms.
  

What really didn't work:

• Pershing Square Holdings was the worst performer, giving back AUD 11k of gains. Gold was second worst, losing AUD 9k.
  

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. We have the desired asymmetric capture for all three indices now and positive alpha compared to all of them. 

 

We moved further towards our long-run asset allocation. Real assets (real estate and art) are the asset class that is furthest from their target allocation (7.4% of total assets too little) followed by hedge funds (3.6% too much): 

 

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I invested USD 10k in another painting with Masterworks.
• USD 50k of HSBC bonds matured.
• The remaining USD 3.75k of General Finance baby bonds were called.
• I sold 2000 shares of the Boulder Income Fund (BIF) closing our position and buying 100 shares of Berkshire Hathaway (BRK/B) instead. 
• I also closed our position in Pendal Property Securities and switched the funds to Generation Global. Both are funds offered by Colonial First State.
• To then rebalance a bit towards real estate I bought 50,000 shares of URF.AX.
• As part of a long term plan to not hold US stocks directly, I reorganized my holdings in my Interactive Brokers and CommSec brokerage accounts. In the end, the CommSec account ended up holding gold (PMGOLD), unlisted funds from Colonial First State and Macquarie, and small positions in each of our listed Australian funds. The latter are so we get the correct tax information from the share registries as IB isn't strong on this. My main holdings of these funds are now at IB, which has a much lower borrowing rate. IB has all my other stock positions in Australian, UK, and US markets. The latter will eventually move to the new SMSF. There are also some bond positions there which we will hold to maturity.
  

Bitcoin Going Completely Nuts Over the Weekend

I've noticed that in recent days Bitcoin has gone up starting at around 6pm US Eastern time when all stock markets in the World apart from New Zealand are closed. Of course, this is the afternoon and evening on the US West Coast. So, I figured that it was driven by retail investors in the U.S. Now this weekend, that trend has continued in dramatic fashion:

Bitcoin is up almost $700 on Friday's close. Luckily, I am long Bitcoin futures. It certainly makes me wary of ever being short Bitcoin over the weekend. Bitcoin has now popped up to be my 22nd best investment in dollar terms ever - I've been investing since 1996... Just about to overtake Pendal Property Investments. Anyway, anything could happen by 10am Monday Eastern Australia time when the futures market re-opens...

P.S.
Obvious solution to going short over the weekend is to have an account with a cash Bitcoin exchange that is open over the weekend and buy Bitcoin if the stop loss level is reached. What such exchanges allow stop orders?

P.P.S.
Bitcoin now up $1000 since Friday. If this persists till Monday it will be the biggest daily move in percentage terms in my dataset, possibly since the futures market open at the end of 2017. Plus 500 allows CFD trading 24/7. There are huge buy-sell spreads, so this would only be used as insurance. You can place conditional orders, such as buy only when the price reaches a certain level.

P.P.P.S.
I tried the demo platforms at Plus500 and eToro. eToro appears to be very limited and geared to novice traders. There were strong restrictions on the levels of orders that could be placed. So, Plus 500 seems to be the only real option that offers Bitcoin CFD trading 24/7.

March 2019 Report

In March the Australian Dollar fell from USD 0.7106 to USD 0.7096. The MSCI World Index rose 1.32% and the S&P 500 1.94%. The ASX 200 rose 0.97%. All these are total returns including dividends. We gained 0.53% in Australian Dollar terms and 0.40% in US Dollar terms. Our currency neutral rate of return was 0.39%. The target portfolio gained 1.10% in Australian Dollar terms and the HFRI hedge fund index 0.97% in US Dollar terms. So, we underperformed our benchmarks.


Here again is a detailed report on the performance of all investments:

The table also shows the shares of these investments in net worth. At the bottom of the table I also included the Australian Dollars return from foreign currency movements and other net investment gains and losses - net interest and fees. This time I also combined all individual corporate bonds into a single investment. Their individual returns are not very informative. At the asset class level only Australian small cap stocks and hedge funds lost money this month. U.S. stocks were the best performing asset classs.

Things that worked very well this month:

• Pendal Property Investments an Australian fund of REITs did surprisingly well. Pershing Square Holdings continued to gain as Bill Ackman turned round his recent poor performance.

What really didn't work:

• The Tribeca Global Natural Resources listed hedge fund performed very badly this month.

We treaded water relative to our new long-run asset allocation:*

The main driver is continued movement of cash from my US bank account to Interactive Brokers where I am buying bonds before eventually transferring some of the money to our Australian bank accounts when the broker allows..... We are now quite underweight in Australian shares.

On a regular basis, we also invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. Other moves this month:

• USD 135k of corporate bonds matured (Santander UK and Welltower) and I bought USD 284k of bonds (HCA, Virgin Australia, Viacom, WGL, Goldman Sachs, and Kinder Morgan). 
• I bought 755 Commonwealth Bank hybrid securities (preferred stock).
• I sold 10,000 shares of PIXX.AX and bought 30,000 shares of PMC.AX after the premium to NAV of the latter fell substantially.
• I bought another 1089 OCP.AX shares.
• We completed the deleveraging this month, just in time for the US yield curve to invert out to the 10 year maturity. I sold all of Moominmama's units in the CFS Geared Share Fund and bought units in the Imputation Fund instead. I also sold all her units in the CFS Geared Global Share Fund and bought units in the Generation Global and Platinum International Fund (same as PIXX.AX) instead. Yes, we still have a margin loan, but we have the cash to pay it off, just not yet in the right country...
• I applied for the Pengana Private Equity IPO.
  

* Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds. From this month though we no longer have any leveraged funds.

December 2018 Report

You'll probably have heard that this was the worst December for US stocks since 1931. December is seasonally a positive month for stocks. Things weren't quite that bad in Australia and because the Australian Dollar fell, our returns for the month in AUD terms ended up being positive.

The Australian Dollar fell from USD 0.7302 to AUD 0.7049 The MSCI World Index fell 7.00% and the S&P 500 9.03%. The ASX 200 fell only 0.01%. All these are total returns including dividends. We gained 0.24% in Australian Dollar terms and lost 3.24% in US Dollar terms. So, we outperformed the Australian and international markets. This is not surprising given the weight of US Dollar cash in our portfolio. Our currency neutral rate of return was -1.74%.


Here again is a detailed report on the performance of all investments:

The table also shows the shares of these investments in net worth. At the bottom of the table I also included the Australian Dollars return from foreign currency movements and other net investment gains and losses - net interest and fees.

Things that worked quite well this month:

• US Dollars cash 
• Gold
• Property, including:
• My jointly owned apartment with my brother. We got an offer for the apartment near the end of the month and I raised the carrying value in line with that.
• TIAA (direct US investments) and Pendal (REITS) real estate funds.
• On the other hand BlueSky lost a lot...
• Our direct share holdings in Medibank and Yellowbrickroad.
• Again, the PSS(AP) superannuation fund did relatively well (though losing) compared to Unisuper. But on the way up it gained just as much as Unisuper. It has both lower beta and higher alpha... At least based on the investment choices I have made within the fund.

These all show the value of diversification pretty nicely.

What really didn't work:

• Cadence Capital, again fell sharply. It's performance in the last three months has been very bad. It's not surprising that they have cancelled their IPO of the Cadence Opportunities Fund. They received only AUD 8 million of subscriptions. It will still go ahead as an unlisted public company, whatever that is. Overall, we have lost money investing in Cadence.
• BlueSky fell back too.  We still have made some money on this investment.
• 3i, China Fund, Pershing Square, and CFS Geared Global Shares all fell in line with global stock markets. The latter would have benefited from the fall in the Australian Dollar, which for an investment denominated in Australian Dollars is included in the return on that investment, but is separated out for the investments denominated in foreign currency...

We moved towards the new long-run asset allocation:*

This is partly because I am classifying cash in trading accounts as "commodities". I started moving cash from my US bank account to Interactive Brokers. Another large part of the change was due to the fall in the Australian Dollar raising the value of our USD cash in AUD terms. From next month we should see a big increase in allocation to bonds instead.

We also invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. Other moves this month:

• I bought 400 shares of the China Fund (CHN) early in the month. Not a good idea.
• I bought 25,000 shares of Bluesky Alternatives in the middle of the month (BAF.AX). Another bad idea.
• I bought 500 shares of Pershing Square Holdings (PSH.L) at the end of the month. So far, not a bad idea.
• I received cash from UBS in my US bank account and started moving it to Interactive Brokers and from there to our Australian bank account. After this first transfer, most of this money will go into buying a US Treasury Bills ladder in the short run. Today, I discovered that I have to keep the cash at IB for 2 months before I can move it to another bank account. So I am looking to buy some Australian bonds (probably bank hybrid securities) in the interim.

* Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds.