December 2022 Report

Venture capital returns won't be reported for another month, but I expect them to be flat, so that the final numbers are not far from what they are now. In December, stock markets fell. The MSCI World Index (USD gross) lost 3.90%, the S&P 500 5.76% in USD terms, and the ASX 200 3.13% in AUD terms. All these are total returns including dividends. The Australian Dollar rose from USD 0.6788 to USD 0.6816. We lost 1.24% in Australian Dollar terms or 0.83% in US Dollar terms. The target portfolio is expected to lose 2.43% in Australian Dollar terms and the HFRI hedge fund index around 1.3% in US Dollar terms. So, we out-performed all 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 and private equity had positive returns. Gold was the biggest contributor to returns and hedge funds the greatest detractor.

Things that worked well this month:

• Gold gained AUD 14k and Pengana Private Equity (PE1.AX), 9k.
  

What really didn't work: 

• Regal Funds (RF1.AX) lost AUD 12k followed by Hearts and Minds (HM1.AX) and Tribeca Global Resources (TGF.AX), which each lost 10k.
  

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 MSCI is reported in USD 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 and the MSCI but not against the hedge fund index. We have a higher Sharpe Index than the ASX200 but lower than the MSCI in USD terms. We are performing about 2.5% per annum worse than the average hedge fund levered 1.7 times. Hedge funds have been doing well in recently.

We are now very close to 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 bought 1,000 shares of PMGOLD.AX.
• I tried to do a trade with around 12k shares of Regal Funds (RF1.AX). It wasn't successful.
• I closed a tiny position of WLS.AX shares pending the merger of WLS into WCMQ.AX.
• The remainder of our WLS shares will convert to WCMQ and our URFPA shares will convert to URF at the turn of the year.
  

How Can They Afford It?

One of Moominmama's friends (from undergrad days in the world's most populous country) told her they have bought a house in one of the most expensive neighborhoods here. They plan to knock it down and build their dream home including a swimming pool. It is in walking distance of their two children's school, the most expensive private school here.  Her reasoning is that it costs AUD 4 million to buy an existing house like they want, and this will be cheaper. Still, a crappy house there costs almost AUD 2 million. They haven't sold their existing town house in our neighborhood yet and they apparently also bought her parents an apartment here. She is an administrator at my workplace on probably AUD 100-110k a year and her husband was an associate professor (AUD 150-158k). He recently moved to Moominmama's employer.

 

AUD 3.5 Million House

My immediate reaction was: "How can they afford to do that?" I think Moominmama gets a lot of her aspirations from following this family, including sending our children to private school. 

Subscriptions

Our utilities spending category had been rising strongly over time and so I decided to split out the "subscriptions" component:

The graph is in Australian Dollars per year. Data for 2022-23 is for calendar year 2022 and previous years are 1 July to 30 June to match the Australian tax year. Back in 2017-18, subscriptions were less than AUD 1k and so I included them together with phone and internet access bills in a "phone and internet" subcategory that got then bundled into "utilities". But they underwent a step change in 2020-21. Now I am only including "infrastructure" costs - phone bills, internet access, data storage etc. in the phone and internet subcategory. All the subscriptions and payments for electronic services are now in "subscriptions". I moved web-hosting to the "professional" category.

At least "subscriptions" aren't increasing much since the pandemic step change took place. Utilities have increased 36% since 2017-18, which is less than our overall 58% increase in spending. So, there isn't really a problem there. Childcare and education has increased most, by 483%. It was AUD 55k in the 2022 calendar year compared to only AUD 9k in the 2017-18 financial year. Calendar year 2022 spending was AUD 170k (USD 115k).

Domacom Reinstated to ASX Quotation

On the last trading day before Christmas, Domacom has been reinstated to quotation. I wonder where the price will end up?

7:27pm

It went up! Closing at 7 cents a share. It was last quoted at 6.5 cents before being suspended. There were more shares on the buy side than the sell side most of the day.

November 2022 Report

In November, stock markets continued their rebound and the Australian Dollar rose strongly increasing US Dollar returns relative to Australian Dollar returns. The MSCI World Index (USD gross) rose 7.80%, the S&P 500 5.59% in USD terms, and the ASX 200 6.78% in AUD terms. All these are total returns including dividends. The Australian Dollar rose from USD 0.6387 to USD 0.6744. We gained 3.05% in Australian Dollar terms or 8.81% in US Dollar terms. The target portfolio is expected to gain 1.23% in Australian Dollar terms and the HFRI hedge fund index around 1.0% in US Dollar terms. So, we out-performed all benchmarks apart from the ASX. 

Our SMSF hit a new high in terms of cumulative returns, exceeding the previous high in September 2021. It is now up more than 15% since inception and well ahead of our employer superannuation funds:

 

These are all in pre-tax terms - franking credits are included but no tax deducted. This will be a bit over-generous to the employer superannuation funds on the way up and the opposite on the way down. The increase in my US retirement account (TIAA) is to a large extent because of the fall in the Australian Dollar. It fell this month as the Australian Dollar rose. But the TIAA Real Estate Fund also performed extremely well over this period until recently.

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 futures had a negative return. RoW stocks were the best performer partly because of the rebound in the China Fund and hedge funds were the largest contributors to the month's return.

Things that worked well this month:

• Tribeca Global Resources was again the top performer in terms of dollars gained (TGF.AX, AUD 25k). Coming in second and third were the China Fund (CHN, 18k) and Australian Dollar Futures (17k). Also gaining more than AUD 10k were 3i (III.L, 17k), Unisuper (16k), PSS(AP) (12k) Pershing Square Holdings (PSH.L, 12k), and gold (10k). With the exception of the China Fund and AUD futures, this is very similar to last month.
  

What really didn't work:

• Winton Global Alpha Fund (-12k), Aspect Diversified Futures (-6k), and WAM Alternatives (WMA.AX, -4k) were the greatest detractors.
  

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 MSCI is reported in USD 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 and the MSCI but not against the hedge fund index. We have a higher Sharpe Index than the ASX200 but lower than the MSCI in USD terms. We are performing more than 3% per annum worse than the average hedge fund levered 1.79 times. Hedge funds have been doing well in recent years.

We are now very close to our target allocation as Regal Funds diversifies its holdings. 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 5000 shares of WAM Leaders (WLE.AX) and bought 1000 shares of the China Fund (CHN).
• I sold USD 17.5k of the TIAA Real Estate Fund and bought the Social Choice Fund instead.
• I bought 4000 shares of Regal Partners (RPL.AX).
• I sold the 2000 shares I held in Fortescue Metals (FMG.AX). We made about AUD 4k on this trade.
• I sold 10k shares of Regal Funds (RF1.AX) and bought 500 shares of URFPA.AX - the US Masters Residential Fund converting preference notes.
• I sold 1,000 shares of Ruffer (RICA.L) to get money for our next subscription payment for Unpopular Ventures.
  

Regal Funds Adds Private Credit

After recently adding a resource royalties strategy, Regal Funds (RF1.AX) are now adding a private credit strategy. They also announced a placement and rights issue to help implement the new strategy. The fund started primarily as a listed hedge fund with some private equity. But it is increasingly becoming a diversified alternatives fund. I suppose all these new strategies are supposed to reduce the correlation of the fund to the stockmarket. The fund has had a beta of 1. However, this looks like it will come at the expense of performance. You can't do 20% a year in strategies like private credit. Well, I guess you can lever up...

In any case, performance wasn't good in November, especially relative to the stockmarket which rose strongly. I sold 10,000 shares this week to increase my holding of URFPA. The rights offering is at AUD 3.01 a share (current NAV) with a maximum of AUD 30k per holder. I decided not to bother as I can't buy more than 2,000 shares without selling something else.

October 2022 Report

In October, stock markets rebounded and the Australian Dollar ended close to flat. The MSCI World Index (USD gross) rose 6.06%, the S&P 500 8.10% in USD terms, and the ASX 200 6.06% in AUD terms. All these are total returns including dividends. The Australian Dollar fell from USD 0.6399 to USD 0.6387. We gained 2.85% in Australian Dollar terms or 2.66% in US Dollar terms. The target portfolio gained 3.07% in Australian Dollar terms and the HFRI hedge fund index is expected to be almost flat at 0.08% in US Dollar terms. So, we under-performed all benchmarks apart from HFRI, though we were not far from the target portfolio.

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 rest of the world stocks had a negative return, which was because of the poor performance of China. US stocks were the best performer and hedge funds the largest contributors to the month's return.

Things that worked well this month:

• Tribeca Global Resources (TGF.AX, AUD 18k), Unisuper (15k), Pershing Square Holdings (PSH.L, 12k), and PSS(AP) (10k) were the largest contributors.
  

What really didn't work:

• The China Fund (CHN, -9k) and Fortescue (FMG.AX, -4k) were the greatest detractors.
  

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. We have a higher Sharpe Index than the ASX200. We are performing more than 3% 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 mainly by reducing exposure to hedge funds and gold. 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:

• We received the payout from the sale of Gargantua.
• I sold 5k shares of Cadence Capital (CDM.AX) to get some cash.
• I sold 11k shares of Regal Funds (RF1.AX) that I bought in September.
• I sold 1000 shares of PMGOLD (PMGOLD.AX) as the Australian Dollar gold price peaked a little. I'm now feeling that we are at a much more comfortable debt level in our margin accounts given the rise in interest rates and volatility.
  

Real Salary

 

I was wondering whether we were getting worse off over time at my employer and so plotted my real and nominal pre-tax salary for the time I have been in my current position. Halfway along there was a blip where I was department head and got paid more. In real terms I am now about $2000 below where I started in 2011. The union is asking for a 15% increase in the latest bargaining round. After tax that is a about an 11% increase (because of progressive tax rates).

More Factoids from the 2019-2020 Australian Income and Wealth Survey

3.2% of households are in both the top income and top net worth deciles. That means their net worth is above $2.258 million and their annual income is above $235k.

2019-20 Australian Income and Wealth Distribution

 

I didn't notice when the Australian Bureau of Statistics released the 2019-20 data on Australian household income and wealth distribution. I previously reported on the 2015-16 and 2017-18 data.

Mean gross household income was $121k per year in 2019-20 (all $ are Australian Dollars). The median was $93k. These are not adjusted for household size. ABS provides data adjusted for household size in terms of the income a single person would need to achieve the economic well-being of the average household. To adjust these to the required income of a household with 2 adults and 2 children requires multiplying by 2.1. I seriously doubt that adding a child only increases costs by 0.3 of the first adult! 

Mean gross household income in the ACT was $150k and the median $124k.

To be in the top 10% of households requires a gross income of at least $235k. To get information on the breakdown inside the top 10% you have to use their data on the number of households within each of different bands of weekly income. 4.7% of households have an annual income above $312k and another 3% between $260k and $312k. Our gross income was $264k (taxable income), so we just fall within this group and, therefore, in the top 7.7%.

Mean household net worth was $1.04 million and the median was $579k. To be in the top 10% you needed a net worth of $2.26 million. We were at $4.44 million at the end of June 2020. To be in the top 3.9% you needed a net worth of $4 million. So I estimate we were at the edge of the top 3.3%. I guess it makes sense given my age that we higher in the wealth distribution than in the income distribution.

1.2% of households had a net worth above $7 million and 0.6% above $10 million.

There is a lot more data on breakdown of assets etc. which I might report on another time.

To be in the US top 1% by net worth required USD 11 million ($17.75 million) in the same period. A top 1% US household income is around USD 600k and above.

Regal Investment Fund Implements Resource Royalties Strategy

 

Regal Investment Fund (RF1.AX) is continuing to diversify their portfolio. Recently, they added a water strategy through Kilter Rural. Now they are adding a resource royalties strategy through the Gresham Resource Royalties Fund. While the water strategy is only 2% of the fund, the resource royalties strategy will be 17% of the fund initially. I am categorizing both of these in the real assets class. From the announcement:

"A resource royalty is a right to receive payment usuallyreflecting the value of a percentage of revenue derived from the production from a mining, oil and gas or renewable project. A commodity stream is an agreement conferring a right to purchase all or a portion of the production produced from a mining, oil and gas or renewable project at a pre-set price. Royalties and commodity streams are often used interchangeably. Royalties and commodity streams are typically acquired for an upfront payment. They can provide investors with the upside potential of increased commodity prices, increased production and extended mineral reserves (and sometimes new discoveries) with no or limited exposure to variable operating costs and future capital calls to fund exploration or other capital costs."

Performance of Average Investors

 Latest version of the famous J.P. Morgan graph:

They estimate the returns for "average investors" from mutual fund flows. My return for this period was 6.12% (USD return). It's good that I am way ahead of the average investor but not good that I am behind a 60/40 portfolio (with no fees).

For a while now, I have been tracking these 20 year returns. Here is a graph with rolling 20 year USD returns for my portfolio and some key indices:

Each datapoint is the return for the 20 years up to that month. I started investing in 1996 and so the first observation is for September 2016. While I used to be worse than the median hedge fund, in the last couple of years my 20 year track record is a little bit better than the hedge fund index. I like to think it is more important to perform well the more money you have to invest :) In other words, dollar-weighted returns are more important than time-weighted returns.

Gargantua by George Condo Sold

Masterworks sold the third painting that I invested in, Gargantua by George Condo. The original offer price to investors was $1.65 million and they sold it for $2.55 million. After performance fees, sales costs etc. the proceeds are probably within 5% of the most recent estimate they provided.

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.
  

Moominmama Actually Had Negative Tax for 2021-22

Not sure why the calculation I posted here showed positive tax, but both the ATO and my own calculation show that Moominmama's tax assessment was -$127 for 2021-22. That's kind of like the holy grail or something :)

Heading for a Fall in Net Worth

 This is why I have been concerned about saving money recently:

I'm currently forecasting that this year comprehensive after-tax income (including superannuation and unrealized capital gains/losses) will be less than spending. This would be the first decline in end of year net worth (not counting our house) since the financial crisis.