Defi Technologies Seeking Formal US Listing

The company announced that it is actively seeking a listing on a US exchange and has hired Liquid Advisors to work on their case. It's currently an OTC or "pink sheets" stock in the US.

Zacks Report on Defi Technologies

Get the report here. Bottom line is: "Unsustainably Low Valuation". They have a valuation target of USD 3 vs. the current price of USD 0.80. This seems quite conservative. Still, I am being very cautious and invested 1.1% of the portfolio.

Apparently, chances of a US Ethereum ETF being approved are growing. But as a result, the price of Ethereum rocketed, which is good news for Defi.

P.S.

Zacks issued another report after the conference call today. They upped their price target to USD 7.

Keith Haring Painting in Exhibition

 I am an investor in the painting on the left. Hopefully no-one will throw soup at it or something!

New Investment: Defi Technologies

Anthony Pompliano recommended Defi Technologies in his daily newsletter, the Pomp Letter. He is heavily invested as his research firm was acquired for shares in DEFI. So, you wouldn't take this tip at face value but he might know what he is talking about. I checked out the company. Basically, they are forecasting around CAD 30 million in profit in 2024, when the market capitalization was about CAD 200 million. So, based on that it seems undervalued. If crypto prices rise, then assets under management and profit rise automatically. They also have a bunch of venture capital investments on their balance sheet. The management team looks good. Main threat is that competing products like a US launch of an ethereum ETF could take investors away from their exchange traded products that trade in Europe. But the SEC is not looking like they will approve this. So, I made a small investment (0.4%) yesterday. Made the mistake of buying shares on the Canadian CBOE exchange where the brokerage fee turned out to be 0.5%!

P.S.

The reason the brokerage turned out so expensive is that it is CAD 0.01 per share with a maximum fee of 0.5%. As I bought 20,000 shares trading at about CAD 0.94 each, I ended up paying 0.5%. For trading in the US it is USD 0.005 per share with a maximum of 1% and minimum of USD 1. So, I would have ended up paying more buying in the US! I'm not used to buying such low priced shares in North America.

SPY vs. Putnam BDC ETF

The Putnam Business Development Company ETF (PBDC) has outperformed the S&P 500 since inception with lower volatility. No guarantee this continues of course, especially as it's probably not statistically significant, but interesting:

The chart shows the share price of SPY divided by the share price of PBDC when both are adjusted for dividends. SPY, declined relative to PBDC over this period.

April 2024 Report

All good things come to an end. This month was the first down month after a run of five winning months. It was also very busy investment and trading-wise.

In April, the Australian Dollar fell slightly from USD 0.6514 to USD 0.6494. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -3.26%

S&P 500: -4.08%

HFRI Hedge Fund Index: -0.77% (forecast)

Australian Dollar Indices

ASX 200: -2.93%

Target Portfolio: -2.04% (forecast)

Australian 60/40 benchmark: -2.21%. 

We lost 1.27% in Australian Dollar terms or 1.57% in US Dollar terms. So, we beat all benchmarks apart from the projected HFRI index.

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 and so are smaller than the Australian Dollar returns on net assets mentioned above. Returns were mixed across asset classes. Gold had the highest rate of return and made the largest contribution to returns while futures had the lowest return and detracted the most from returns.

Things that worked well this month:

• Gold was our star performer despite falling back from its peak. Tribeca Global Resources also gained more than AUD 10k.
  

What really didn't work: 

• Bitcoin had its first losing month since August 2023, falling more than 16%. The loss was the biggest monthly loss in AUD terms on any single investment ever. We've clawed back almost 1/4 of it so far this month.
  

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 results for three indices. Compared to the ASX200 we have a lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.91 vs. 0.66. But as we optimize for Australian Dollar performance, our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. We do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.34% with a beta of only 0.45. 

We are fairly close to our target allocation. We are underweight private equity and RoW stocks and overweight real assets. 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. It was very a busy month:

• The biggest move was to redeem our holdings in the APSEC hedge fund. I have been dis-satisfied with our returns in 2023 and want to shake things up. This is a defensive type of investment that lost 7% in 2023.
• I also sold Berkshire Hathaway. This investment has been OK, though some people are now bearish on it. Others are bullish. We may come back to it.
• And we also sold the China Fund. This has not been good. Mostly because China under Xi Jinping has not been good and he's not going anywhere. But CHN bounced right after we sold and is up 10% on our exit price as of 3rd May!
  
• I also switched my remaining CREF Social Choice Fund into the TIAA Real Estate Fund. I was still too early.
  
• I invested in the Putnam BDC ETF and a Bendigo Bank hybrid security. Both are doing well so far.
  
• I bought 25k shares of Platinum Capital. I am expecting the price to converge to NAV after the announcement of a strategic review.
  
• I bought 22k more shares of CD3.AX - a listed private equity fund. It is gradually winding down and making large distributions. The fund still trades below NAV. However, each time the fund pays a dividend it seems to move closer to NAV as the price doesn't change but the NAV goes down. So, the potential return in the short-term is high.
• I bought AUD 30k of the Macquarie Winton Global Alpha Fund. 
• I bought 1,150 shares of FBTC, a bitcoin ETF.
• I sold 5k of RF1.AX as it approached NAV.
• I sold 2k shares of PMGOLD.AX, a gold ETF. This was good, as gold in AUD terms has fallen since then.
  
• I did both good and bad trades.
  

Platinum Capital Announces Strategic Review

Platinum Capital is a closed end international hedge fund listed on the ASX, which I have invested in for a very long time. In the past, I gained by trading when the fund traded above or below net asset value. But since the pandemic started it seems to have been in a permanent slump. Currently, the share price is 25 cents below the NAV. The underlying performance of the fund has also been relatively poor for a long time. Now, Platinum has announced a strategic review that could include converting to an open ended fund. The latter would allow redemption at NAV. I support this idea. I might even buy more of the fund in anticipation.

P.S. 11:35am

The stock has jumped 7 cents on the news, but there is still 17 cents to go to reach the NAV, so I bought 25k shares in the SMSF.

Bitcoin vs. the MSCI Index

 

The chart shows Bitcoin (blue) and the MSCI World Index (red) on two different scales. Major cycles in Bitcoin appear quite closely related to those in the stock market. Formal analysis shows that in recent years, Bitcoin has a beta of about 2 to the market but also a very high alpha and also of course a lot of extra volatility. The relationship of the price of Bitcoin to a 4 year cycle around halvings could just be coincidence. However, the high alpha shows that there is a strong upward trend that is uncorrelated to the stock market. Economic theory would show that the price of Bitcoin is mainly demand driven. The rewards that Bitcoin miners get drive the number of miners rather than mining costs driving the price of Bitcoin. For the price to continue to rise we need to have increasing demand. The recent introduction of ETFs is an example of that.

New Investment: Bendigo Bank Hybrid

Following on from yesterday's post, I did some research on Australian Bank Hybrids. Essentially, a hybrid is a convertible bond. At a certain date it may be converted into shares of the issuer. The ratio is not set up front but is based on the share price at the conversion. In the meantime, you are paid a floating interest rate that is a fixed margin above the market interest rate. As a result, there is little price risk if everything goes well. However, if the issuer gets into financial trouble the value of the bonds can be reduced or in theory go to zero, like any other corporate bond.

I thought about an offering from Judo Bank. The bank is new but is making money and its credit rating was recently upgraded, but Interactive Brokers didn't list it. The next best yield-wise and with a better credit rating was from Bendigo Bank. So I bought 350 shares of BENPI.AX.

New Investment: Putnam BDC Income ETF

I just bought 1,000 shares of the Putnam BDC Income ETF. This is an actively managed ETF that invests in US business development companies. These are basically private credit lenders. The dividend yield is 9.19%, which is high, but lower than many BDCs. I am thinking of this as an enhanced cash investment (though formally I am listing it under US stocks) and so I wanted to avoid the idiosyncratic risks of individual BDCs. I learnt about this investment from Armchair Income. I did think of investing in the KKR BDC, FSK.

This is what I did with much of the cash from selling The China Fund. As it is in our SMSF, only 15% tax applies to the income. I also have Australian Dollar cash in the fund. I didn't want to convert to US Dollars at this low exchange rate and so will research bank hybrids to invest in.

Futures Trading Disaster

I really messed up with bitcoin futures positions and lost a bunch of money. The triangle didn't work out. I really shouldn't trade futures directionally, I think. They give me anxiety that holding stocks does not. It makes no sense but that is the way it is. So then I trade badly. I closed the positions I had, probably at the bottom of the market for a big loss because I couldn't take it any longer. I still have ETF positions. But I feel so much calmer about those. Crazy. I know that I can't handle this sort of trading holding positions overnight but still I do it. You would think I would have learned this, but somehow I am still optimistic that it will work out.

Didi Taihuttu on Youtube

I am following this dude closely on Youtube:

Elliott Wave Triangle in CME Bitcoin Futures

I'm not big on this sort of technical analysis and especially Elliott Wave but it is amazing how the CME Bitcoin Futures just touched the line drawn connecting the previous two recent lows forming a perfect Elliott Wave triangle:

Hopefully, it will hold with the halving this week...

P.S. 16 April

The low at E was overshot during the US trading session, but this often happens in these formations. As the low of C was not exceeded the triangle is till valid if you believe the theory. Downward pressure is coming from both the general "risk-off" mood in the financial markets and prior to previous halvings there was also weakness before the event and then a bull market following. Also, Anthony Pompliano points out that Americans have to pay their taxes by today. So, they may be selling Bitcoin to get the cash for their taxes. But the price of bitcoin apparently does need to be higher than this post-halving for miners to breakeven.

Switched Remainder of CREF Social Choice to TIAA Real Estate

In January, I switched about half my CREF Social Choice (a 60/40 balanced fund) holding in my US 403b account into TIAA Real Estate. It was a bit early, but now I have switched the remainder. Here is a chart of the monthly returns for the TIAA Real Estate Fund and a twelve month moving average:

I had previously switched into Social Choice during 2022 at the previous peak on this chart.

Another Tweak to the Target Asset Allocation

To reflect my changing priorities I am raising the benchmark's futures allocation to 15% and reducing the hedge fund allocation to 15% of gross assets. This means that the allocation to equities (including private equity and hedge funds) is now down to 55% from 60%.

APSEC Update

I invested in the APSEC hedge fund back in 2020 just after they outperformed strongly in the COVID19 crash. They have managed to about match the ASX 200 over time with somewhat lower volatility:

They tend to outperform in bear markets and under-perform in bull markets. Since investing, I have only gotten a 5.9% internal rate of return, which is below average. The median IRR of my current investments is 9%. I would have done better by investing more in the Aspect Diversified Futures Fund instead, which has similar hedging properties, where I have had a 22% IRR. We have 2.47% of net worth in the fund all of it within the SMSF. I submitted a redemption notice for all of our holding today.