Two More New Investments

We're still in the process of reinvesting after the most recent reorganization, which centred on rolling over my Colonial First State superannuation fund into the SMSF. I bought the first "tranche" of a position in Fortescue Metals (FMG.AX) replacing the just closed Treasury Wines position. By the way that position made around AUD 15k in profit with an internal rate of return of around 90%. Fortescue is expected to pay out an enormous franked dividend very soon. The interim dividend was AUD 1.47, which was double that in the previous year. Brokers expect the final dividend to be around AUD 2.50 per share plus franking. This is around a 16% annual yield. The reason the share price isn't higher is that brokers also expect profits to fall in the following years. The thinking is that the iron ore price can't remain this high for long. My thesis is that retail investors will continue to buy the stock to get the dividend and that maybe future profits won't fall as much as expected. In the last 90 days they have increased their forecasts of 2022 profits but the share price is below where it was a the beginning of the year.

The second investment is in Contango Income Generator (CIE.AX). This is a listed investment company (closed end fund). It has been a failure, losing money since inception. Wilson Asset Management got involved, buying up shares and agitating for change. The company switched to a new strategy managed by WCM Investment Management who are based in California. This is a global long-short equity strategy, which supposedly has performed extremely well:

Of course, it is trading below net asset value. It's not that liquid, and so getting a full position will take a little while.

We now have 40 different investments not including cash in various currencies, our house etc. And that's counting the eight paintings at Masterworks as one investment. I still have a couple more investments in mind.

And in to Ruffer

 

I invested most of the remaining cash in the SMSF into Ruffer Investment Company. This is a closed end fund trading on the London Stock Exchange. It is a diversified fund invested 40% in stocks, 40% in bonds – mostly inflation indexed – and the remainder in gold, options etc. They are betting on inflation. It has done very well during market crises. The fund:  "has a simple aim – consistent positive returns, regardless of how the financial markets perform. We try not to lose money in any 12 month period, and to grow the value of our investors’ wealth over the long haul. If we can do this, we should outpace inflation, protecting and increasing the real value of our investors’ income and capital."

Got Out of Treasury Wine

Was getting bored of Treasury Wine (TWE.AX) so I exited the position. Probably now there will be a takeover announced :) Previous rumours about takeovers didn't eventuate so far.

First Investment through Domacom

 

 

I made my first investment using the Domacom platform. I bought some shares in a cattle grazing property in Victoria. Mostly, I just want to see how the platform works, so this is a very small investment. I also have made "pledges" for three "campaigns". Activity seems low on the platform in terms of either trading or crowdfunding campaigns. It's not surprising that the company seems to be focusing on other ways to generate funds under management. The platform provides quite a bit of information but I think deals mostly are a bit too nebulous to commit a lot of money to any one. For example, these are the financials for another farm property in Victoria:

What exactly are the outgoings? If there are finance costs, then how big is the mortgage on this property? The "position" has no loan listed. Was the loan paid off? But last year there were no finance costs. It's hard to understand the financials of most properties I looked at.

What farming activity is generating the rent? The pds says: "It is intended that this property will be used to derive income from mixed agriculture use including the farming of sheep and the growing of trees producing nuts." I'm doubtful about the latter. Is it happening? 

Most residential property listed on the site has fallen in value since the initial investment was made. Are initial valuations over-valuing the properties?

I think if this platform is going to be successful it needs to have much more transparent information.

April 2021 Report

This month we completed the initial investments in our self-managed superannuation fund (SMSF). I stopped systematic trading for the moment. We also reached a big round net worth number in  Australian Dollar terms. But once I raised the value of our house to reflect a recent sale in our neighborhood, I realised we would have actually reached that number in February.

The Australian Dollar rose from USD 0.7612 to USD 0.7725. It was another month of increases in world stock markets. The MSCI World Index rose 4.41%, the S&P 500 by 5.34%, and the ASX 200 rose 3.48%. All these are total returns including dividends. We gained 2.54% in Australian Dollar terms or 4.06% in US Dollar terms. The target portfolio is expected to have gained 1.76% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.07% in US Dollar terms. So, we outperformed these benchmarks and did OK vs. the MSCI. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and only Australian small cap had a negative return. Things that worked well this month:

• Tribeca Global Resources was the largest contributor in dollar terms contributing AUD 21k. Gold bounced back, contributing AUD 15k. Unisuper, Cadence Capital, and Pershing Square Holdings all also contributed more than AUD 10k. Other notable strong performers were URF.AX (NY/NJ residential real estate), 3i (UK private equity), and soybeans.
  

What really didn't work:

• The worst performers were Hearts and Minds (HM1.AX) and Domacom (DCL.AX).
  

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 show the desired asymmetric capture and positive alpha against the ASX200 index. Against the MSCI World Index we could be doing better and we are doing a little worse than the median hedge fund levered 1.6 times.

We moved decisively towards our desired long-run asset allocation again as I implemented our SMSF investments. In October 2018, when we received the inheritance we were 48 percentage points away from our target allocation at the time. Now we are less than 6 percentage points away. We compute this by calculating the Euclidean distance between the target and actual allocation vectors. This is the square root of the sum of squared differences between the actual and target allocations for each asset.  Real assets is the asset class that is now furthest from its target allocation (4.6% of total assets too little):

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. This was a very busy month. I'm only recording net changes here:

• Australian large cap: I invested in Argo Investments again.
  
• Hearts and Minds (HM1.AX): I bought back 20k shares I had sold a while ago at higher prices. This is a long only global equities fund.
  
• Hedge funds: I increased our holding of Regal Funds (RF1.AX). This wasn't intentional, but I didn't get the price I wanted in exiting part of our holding in a regular brokerage account while also establishing a position in the SMSF.
  
• Private equity: I increased our holding of the Pengana private equity fund (PE1.AX).
  
• Bonds: Our Medallion Financial baby bond matured and we bought shares in Scorpio Tankers,  Star Bulk Carriers, and Ready Capital baby bonds, increasing our net holdings of US corporate bonds by USD 50k. We also bought shares in the Australian MCP Income Opportunities Trust (MOT.AX).
  
• Art: I invested in another painting at Masterworks.
  
• Real estate: I invested in the Domacom and Australian Unity Diversified Funds. I also doubled our holding of URF.AX (NY/NJ residential property).
  
• Futures: I successfully closed a calendar spread trade in soybeans and stopped systematic trading of ASX futures.
  

Career Decision-Making

My university has a big deficit currently and one money-saving move has been to ask people who are eligible to take long-service leave. Every pay period money is put into a long-service leave account. The university can't access this money unless the employee takes long-service leave. When they take long-service leave, the university stops paying their regular salary thus reducing the current deficit. I haven't yet been eligible as you need to have 10 years of service, and I started in 2011 in my current position. But I was thinking of taking long service leave in the first half of next year. I was vaguely thinking about retiring by the end of next year.

According to standard criteria we are financially independent. 3% of our net worth is AUD 150k and our annual expenditure is around AUD 120k. However, I expect our expenses to rise faster than the rate of inflation. We have two young children who my wife is determined to send to private schools (I tend to think that public schools are fine). We are spending on one private school and daycare right now. We don't get much childcare subsidy from the government because our income is high. But high school is more expensive than this.

My wife (Moominmama) is working (2 days a week), though I told her she doesn't need to if she doesn't want to. She said that holding on to the job has option value. Which I kind of agree with. Things feel very uncertain.

Now I was asked whether I could again take on a leadership position in my school (school = very large academic department in US terms - our school has 4 departments within it - think something like a business school of a university). This is probably the best of the leadership positions. I think it is kind of unfair because I spent five of the last ten years holding such positions, which are a lot of extra work, and some full professors have never done even one. The argument is that I am good at it and they're not... 

So if I started this in January, I couldn't take long service leave and it would be for two years probably. Usually, you get AUD 10-20k a year extra pay. After tax, that is half that, of course. After discussing with Moominmama she said that I should ask instead to reduce my teaching. This has happened in the past and the incoming director might be more open to this than the current school director. Moominmama also think I should hold onto my job for the "option value" and not retire. So, I suggested to her that after doing the leadership position for two years maybe I would switch to half time, which means I could keep the low teaching load. The truth is that without leadership duties my job is a very easy way to earn AUD 200k a year (including the superannuation contibutions). AUD 100k a year is also good money. So, I think I will tell the incoming director that I will do it, but only if I can teach less. I would still earn the AUD 200k a year for the next two years. I won't tell her about dropping to half time after that. Or should I just say no, because others haven't done their fair share of the work?

Argo Investments Again

  

Back in 2012 I invested in Argo Investments for a while. I don't know why I sold it. There were no new investments that month and I didn't comment on it on this blog. Maybe I put the money towards our house buying fund.

Anyway, I just reinvested in the fund in a regular brokerage account. After selling some things which we were buying in the SMSF we now need to reinvest in those accounts. The target allocation says that we are underweight large cap Australian stocks and so that is what I bought. This is a managed fund with a tilt towards value and a very low expense ratio of 0.15%. It has performed pretty well I think. 

By the way, I recently tweaked the target portfolio slightly to give the US and rest of the world equities equal weights instead of a slightly smaller weight for the US. Each is now allocated 6% of assets. This doesn't include hedge funds and private equity, just long-only investments. Australian large cap is supposed to be 9% of the total.

Bond Investments and Overall SMSF Allocation

I made three bond investments and have completed the initial investments for the SMSF. I bought two US baby bonds - Scorpio Tankers (SBBA) and Star Bulk Carriers (SBLKZ). These are both companies that make money, pay dividends and whose stock has good analyst opinions. They also mature soon or are subject to potential call, which means their price doesn't deviate too far from the redemption price usually. I also invested in the MCP Income Opportunities Trust (MOT.AX). This is a listed private credit fund, which has a high yield and performed better than other listed credit funds in Australia through 2020's market crash.

Here is the overall allocation of investments in the SMSF at this point:

The cash and bonds are to take advantage of shorter and longer term future opportunities.

I plan to benchmark the SMSF against Unisuper and PSS(AP) in future performance reports. After all, if it doesn't perform better than our employer superannuation funds, there isn't much point in doing this. As these are both strong performers, it will be a tough hurdle to beat.

Second New Property Investment: Domacom

I made a second property investment application today. This one is to Domacom which is a fractional property investment or crowdfunding platform. I have been an investor in the company itself for a while.  It is now looking quite a bit more stable than it did when I wrote about it before. It's still one of my most speculative investments. The way it works is that you put cash into an interest paying account and then bid on various crowd-funded projects. You can also get a syndicate together to invest in a property using their platform. They have a variety of other products like housing equity release for seniors – selling part of your house, rather than doing a reverse mortgage – Islamic financing for buying houses etc. Their model is supposed to allow SMSFs to invest with leverage because you buy units in a fund rather than buying a property directly. 

The focus is on residential property, but there are also more unusual opportunities like solar power and rural farmland.

New Investment: Australian Unity Diversified Property Fund

This is the first new investment in our SMSF. Real estate is the area where we are most underinvested relative to our target allocation. The SMSF already has an investment in US residential real estate via URF.AX. I sold our existing investment for a capital loss and bought a larger holding in the SMSF. So, this investment covers Australian commercial property. This fund has a very good track record (better than Charter Hall in my opinion) and is diversified across industrial, retail, and office properties. Coles and Woolworths are the biggest tenants. We are investing AUD 50k in this fund.

I have a definite preference for direct investments in property rather than listed investments. REITS tend to move up and down with the stock-market and so don't provide as much diversification as direct investments. On the other hand, actually buying property myself is not something I want to do as the required size of investment is too large. Well, we could easily buy an apartment to rent but we couldn't access commercial property easily. So pooling investments with others makes sense. 

If a REIT is trading a lot below NAV, like URF is, then I am interested in buying. URF is a pretty risky investment, though US residential property seems to have turned the corner. Financial Samurai even said he wanted to buy Manhattan Real Estate.

We already have exposures to US and Australian commercial real estate through our employer superannuation funds, the Wilson Alternative Assets Fund (WMA.AX) and the TIAA Real Estate Fund.

Stopping Systematic Trading Again...

Of course, bitcoin went straight down after I got in and I have now closed that trade. There was no real basis to that trade. I just went in because Oscar Carboni was getting bullish on bitcoin again. But I have also decided to stop my attempts at systematic trading. I thought I could come up with something which my personality could handle. But it's not the case. I just can't get detached when there is an order out there that may or may not trigger, needs attention to close etc. My anxiety and lack of sleep has been getting worse again this week, despite not actually trading and last night I decided to pull the plug. I still have a soybean calendar spread trade open, which maybe I was most anxious about. But it is actually making money now. I had increased the size of the trade. That was a bad idea. I have now gone back down to two contracts instead of three. These moves should reduce the overall cognitive load. If this still doesn't work, I'll have to close that trade too.

This seems to have happened every time I really get into trading, but each time I think it will be different. Moominmama was concerned when I said I was trading again, saying that I always end up stressed as a result. She was right.

P.S. 9 April

I still had difficulty sleeping, so I closed the soybean calendar spread too. At least that one made some money.

Bitcoin

 I'm finally back into Bitcoin. The position I could get was tiny. Margin requirements are crazy. On IB they are something like twice the actual BTC position. I took a small position on Plus500.

March 2021 Report

This month we took some big steps towards fully setting up our self-managed super fund. Trading didn't go well, but I persisted, following the rules exactly. We also reached a big round net worth number in  Australian Dollar terms. 

The Australian Dollar fell from USD 0.7737 to USD 0.7612. The MSCI World Index rose 2.72%, the S&P 500 by 4.38%, and the ASX 200 rose 2.74%. All these are total returns including dividends. We gained 1.46% in Australian Dollar terms but lost 0.17% in US Dollar terms. The target portfolio is expected to have gained 2.00% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.30% in US Dollar terms. So, we strongly underperformed all our benchmarks. 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:

• Three hedge funds: Cadence Capital (AUD 20k), Regal Funds, and Platinum had the largest gains this month in absolute terms. Cadence benefited from its investment in Deepgreen metals. Domacom gained 21% or AUD 7.5k.
  

What really didn't work:

• Gold lost the most in dollar terms (AUD 11k) with Hearts and Minds (HM1.AX) and the China Fund (CHN) following up. Trading the ASX200 lost the fourth largest amount AUD 6k.
  

I thought it'd be interesting to look at the twelve month performance since the end of March 2020 when the stock market bottomed:

Portfolio shares are as at the end of March and gains are the dollar gain since March divided by the value at the end of March. Hedge funds are again the star performer, but Aussie small caps did surprisingly well.

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 show the desired asymmetric capture and positive alpha against the ASX200 index.

We moved sharply away from our desired long-run asset allocation. Rolling over my retail superannuation funds to the SMSF resulted in a big rise in cash. Cash is the asset class that is furthest from its target allocation (12% of total assets too much) followed by real assets (7% too little):

 

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:

• Our SMSF received all approvals, and I rolled over my Colonial First State super funds to the SMSF, made an AUD 15k contribution to the fund, and applied for a brokerage account.
• Ready Capital called their baby bonds early, reducing our bond exposure by another USD 25k.
  
• I continued systematically daytrading ASX200 CFDs and futures.... Daytrading experienced a strong drawdown. I lost as much (including slippage) as the algorithm did (not including slippage) despite using a smaller position size, mainly because of one bad trade where Plus500 got me into the opposite direction trade than I should have been in. The trade in the wrong direction triggered near the open, when in the futures market you would have got into a trade in the right direction later in the day.
  
• I started a calendar spread in soybeans futures. Soybeans are very strongly backwardated when usually they should be in contango. I am betting that the November and May prices will converge. They went the wrong way in March but on 1st April moved very sharply in my favor.
  
• I invested USD 10k in another painting at Masterworks. I now have USD 70k invested in 7 paintings.
• I bought 15,000 Cadence Capital shares (CDM.AX) @ $1.045 per share when they announced that their pre-IPO investment in DeepGreen Metals was being acquired by a SPAC and would list on the NYSE. The current share price of Cadence gives you this investment for free.
• I sold 10,000 shares of Hearts and Minds (HM1.AX) @ $4.78 a share. The shares are trading at a large premium to the NAV and I felt that some of their recent picks of growth and tech stocks perhaps peaked. I still hold 25k shares.
• I sold half our Treasury Wine (TWE.AX) position @ $11.15 a share. Now it is down to 1% of the portfolio again, which is the default allocation for an investment in a single company.
• I bought 2000 shares of Perth Mint Gold (PMGOLD.AX) @ $22.44 and 22.56 per share. Our allocation to gold fell below the long-term weight. It is now almost exactly at 10% of gross assets.
  

Trading Not Going Well

Last three ASX200 trades were stopped out, which is very unusual. The worst in the backtest was two stop outs in a row. Each day the market goes up at the open and puts me into a long position. Then it falls and stops out. Five of the last six trades were losses. I suspect that isn't so unusual. I've done two soybeans trend-following trades and both (long) were losers too. I'm also doing a calendar spread soybean trade which is about a breakeven at this point. On the other hand, we have been doing well in some stocks like Treasury Wine and Domacom.

ATO Audit of SMSF Applications

I didn't know that the Australian Taxation Office (ATO) audits applications for new Self Managed Superannuation Funds (SMSF). This guy from the ATO office in Perth phoned me yesterday and asked me a bunch of questions about my responsibilities as a trustee and the purpose of opening the SMSF and whether the admin company had approached me about opening a fund and how I picked them. He also wanted me to lodge my tax returns from 2002-07. I was in the US then and so not resident in Australia. So, I went on MyGov (the Australian government portal) and submitted a "don't need to submit a tax return" notice for each of those years. He sent me now by email an approval letter confirming that I passed the audit. Initially, I thought it was some scam when he left a message on my phone. But I checked the "switchboard phone number" on an ATO website and it checked out and so I phoned him back. The whole thing didn't sound very "professional".

February SPI Trading Performance

I made AUD 589 trading ASX 200 futures and CFDs in February. I have now compared my trades to the trades the algorithm specifies. If I had traded one whole SPI contract (rather than varying numbers of Plus500 contracts I would have made AUD 770. But the algorithm just daytrading would have made AUD 4,275. Overnight trading as well had a very negative return for the month (AUD -3,125 if you took an overnight trade every time you were up for the day). So, when I started doing overnight trades, it detracted from my performance. I can also calculate the "slippage". I lost an average of AUD 57 per day due to the spread between buy and sell and inaccuracy in getting in and out of trades at exactly the right time. This is actually less than the spread between buy and sell prices on Plus500 of 3 points or AUD 75. After accounting for slippage, the daytrading only algorithm would have gained AUD 3,062.

Hedge Funds Outperform Again in February

HEDGE FUNDS SURGE IN FEBRUARY AS INTEREST RATES RISE

HFRI Equity Hedge leads broad-based gains as retail trading trend expands;
Macro, CTA strategies advance on rates, commodities;
Crypto, Activist, Technology, Energy sub-strategies also lead

CHICAGO, (March 5, 2021) – Hedge funds surged in February to extend January gains as interest rates, commodity prices, and expectations for the reemergence of inflation all increased. The HFRI Fund Weighted Composite Index® (FWC) gained +4.1 percent in February, while the investable HFRI 500 Fund Weighted Composite Index advanced +3.2 percent, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.

Consistent with the previous month, the HFRI FWC experienced a wide dispersion in constituent performance, as the top decile of the HFRI gained +16.3 percent, while the bottom decile declined -3.1 percent for the month. As reported previously by HFR, total hedge fund capital jumped to $3.6 trillion to begin 2021, a 4Q20 increase of $290 billion, representing the largest quarterly asset growth in industry history. Estimated 4Q20 net asset inflows totaled $3.0 billion, bringing total inflows for the second half of 2020 to an estimated $16.0 billion.

Equity Hedge strategies, which invest long and short across specialized sub-strategies, led February performance as the influence of retail investors increased trading volumes and investors expanded their focus to a wider range of individual equities. The HFRI Equity Hedge (Total) Index surged +4.8 percent for the month, with strong contributions from a wide dispersion of sub-strategy performance led by the high-beta, long-biased Energy, Fundamental Value, and Technology exposures. Following strong January gains, the HFRI EH: Energy/Basic Materials Index surged +9.7 percent in February, while the HFRI EH: Fundamental Value Index spiked +6.4 percent and the HFRI EH: Sector-Technology Index added +4.4 percent.

Event-Driven strategies, which often focus on out of favor, deep value equity strategies and situations, accelerated January gains into February, with the investable HFRI 500 Event-Driven Index surging +2.8 percent for the month, while the HFRI Event-Driven (Total) Index gained +3.6 percent. ED sub-strategy gains were led by Activist, Special Situations, and Credit Arbitrage exposures, strategies which categorically trade in deep value equity situations, including companies which are possible targets for restructuring, acquisitions or investor-driven strategy shifts. The HFRI ED: Activist Index surged +8.3 percent in February, while the HFRI ED: Special Situations Index advanced +4.1 percent, and the HFRI ED: Credit Arbitrage Index added +2.7 percent.

Uncorrelated Macro strategies also posted a strong gain in February, driven by trend-following CTAs and fundamental Commodity-focused strategies. The HFRI Macro (Total) Index jumped +3.6 percent, while the investable HFRI 500 Macro Index spiked +3.7 percent. Driven by strong trends in interest rates, Macro sub-strategy performance was led by the HFRI Macro: Systematic Diversified/CTA Index, which gained +4.4 percent for the month, and the HFRI Macro: Commodity Index, which added +4.1 percent.

The fixed income-based, interest rate-sensitive HFRI Relative Value (Total) Index gained +2.3 percent in February, while the HFRI 500 Relative Value Index advanced +1.5 percent for the month, led by the investable HFRI 500 RV: Volatility Index, which jumped +3.0 percent, and the HFRI 500 RV: Fixed Income-Convertible Arbitrage Index, which advanced +2.4 percent. Extending the January surge, Blockchain and Cryptocurrency exposures continued to deliver strong performance as cryptocurrencies reached record highs and as hedge funds increasingly incorporated related exposures into new and existing fund strategies. The HFR Blockchain Composite Index and HFR Cryptocurrency Index each surged nearly +30.0 percent in February.

Risk Premia and Liquid Alternatives also gained in February, led by multi-asset and commodity exposures. The HFR Bank Systematic Risk Premia Multi-Asset Index advanced +7.9 percent for the month, while the HFR BSRP Commodity Index gained +3.3 percent. The HFRI-I Liquid Alternative UCITS Index advanced +1.05 percent in February, driven by a +1.8 percent gain in the HFRI-I UCITS Event Driven Index.

"Recent hedge fund gains accelerated through February, marking the strongest 4-month period in over 20 years as the drivers of performance widened to include not only Event Driven and Equity Hedge, but also captured strong positive contributions from trend-following Macro and interest rate-sensitive Relative Value Arbitrage strategies", stated Kenneth J. Heinz, President of HFR. "New stimulus measures, increasing vaccinations, and uncertainty with regards to immigration and energy policy have shifted macroeconomic and geopolitical volatility to include not only the single stock or asset trends from concentrated, increased retail trading but also cryptocurrency trading, energy exposure and interest rate/inflation sensitivity. Institutional investors are likely to continue expanding allocations to leading hedge fund managers as a mechanism to gain specialized exposure to these and other powerful trends through mid-2021".

February 2021 Report

The month ended quite turbulently, but stock markets were still up for the month. The Australian Dollar rose from USD 0.7663 to USD 0.7737. The MSCI World Index rose 2.35%, the S&P 500 by 2.76%, and the ASX 200 rose 1.65%. All these are total returns including dividends. We gained 1.65% in Australian Dollar terms or 2.68% in US Dollar terms. The target portfolio is expected to have gained only 0.23% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.05% in US Dollar terms. So, we outperformed or matched all our benchmarks. The S&P 500 isn't a benchmark.

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 Global Resources (TGF.AX), Regal Funds (RF1.AX), and Hearts and Minds (HM1.AX) were the top three performers gaining AUD 20k, 18k, and 11k, respectively. In other notable gains, we gained AUD 5k in Treasury Wine (now a 2% of net worth position) and Winton Global Alpha gained for a change, up AUD 3k.
  

What really didn't work:

• Gold was the worst performer, giving back AUD 30k of gains.
  

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 (7.2% of total assets too little) followed by bonds (2.9% 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 sold my USD 25k of Virgin Australia bonds for 8.125 cents on the dollar. With Australian borders closed longer than we would have expected at the beginning of the year, I guess the company's financial situation will be worse than they expected when they told us we would likely get 9 cents.
• Prospect Capital called its baby bonds (PBB) early, resulting in another USD 25k reduction in our bond exposure.
  
• I started systematically daytrading ASX200 CFDs and futures....  I made a little money, just under AUD 600. I also started trading soybean futures using my version of the turtle model. This system doesn't trade that often. It made one trade which was stopped out for a loss.
  
• Two days before the earnings release, I sold 2000 of our Treasury Wine shares (TWE.AX) as I was anticipating some turbulence. The next day the price fell sharply and I bought them back almost a dollar lower. By the end of the day the price recovered. On the earnings day not much happened. Then the day after earnings the stock price rose 17% on a broker upgrade and a positive article in the Fin Review. After that there was more turbulence and I adjusted the positions a little
  
• I invested USD 10k in another painting at Masterworks. I now have USD 60k invested in 6 paintings.
  

Trading Update

I've now been trading the ASX200 systematically, mostly on Plus500, for two weeks. I'm only ahead by about AUD 500, but that's not surprising. Actually, it's a good result given the small position size so far, and the potential for drawdowns. I've done more backtesting and improved the algorithm. About half of total returns would come from holding winning positions (during the day) overnight and I haven't done that yet. I also updated my soybean trading model with the last year or so of data and the algorithm I was using would continue to be profitable, so I am adding that. By contrast with the ASX200 model, this is a trend following model that doesn't trade very often. Finally, during the past week I did some trading of Treasury Wine around the high volatility in the stock with the earnings release and broker upgrades and downgrades. This involved far larger fluctuations in value than the systematic trading.

Tweaking the Target Portfolio

I've decided to slightly tweak the target portfolio weights to reflect a larger allocation to hedge funds. The top level allocation is 59% to equity and 41% to everything else. Then there is 10% to private equity (split between venture and buyout) and 49% to public equity. Within that 25% to long-only and 24% to hedge funds (was 21.5%) (also split 50/50 to Australian focused and foreign focused funds). And within the long-only 13% to Australia and 12% to the rest of the world. Within Australian 9% to large cap and 4% to small cap and within foreign 5% to the US and 7% to other countries. Within the "everything else category", 10% to gold, 10% to bonds, 10% to real estate, 5% to art, 5% to futures, and 1% to cash and everything else. So:

9% Australian large cap

4% Australian small cap

5% US stocks

7% ROW stocks

12% Australian focused hedge funds

12% Foreign focused hedge funds

5% Venture capital

5% Buyout PE

10% Gold

10% Real estate etc.

10% Bonds

5% Art

5% Futures

1% Cash etc.

Overall the whole portfolio is levered by about 20% (assets are 120% of equity). This 20% is roughly the value of our house, which isn't included in the above. We also try to maintain a 50:50 allocation to Australian Dollar exposure vs. foreign currency exposure. My job is mainly to choose funds and a couple of stocks and do a little trading in part of the futures allocation.

We are still overweight hedge funds after this change.

Plus500 Update

I got a statement from the new HSBC account and submitted it to Plus500 and it was approved! So, now I tried to withdraw $1,000. They at least allowed me to submit the request now. However, there was a statement that they will refund the original source of the money.... Which would mean they will send it back to the credit card we used to fund the account, even though that is a joint account. Let's see what happens. 

P.S. 8 February 

The money showed up in the new HSBC account! So we successfully withdrew money from Plus 500.

Hedge Funds Gained 0.92% in January

 HEDGE FUNDS GAIN IN JANUARY, NAVIGATING VOLATILITY

HFRI Event Driven, RVA & Crypto lead strategy performance;
Deep value Special Situations, Merger Arbitrage, Credit lead sub-strategies

CHICAGO, (February 5, 2021) – Hedge funds advanced in January to begin 2021, actively trading through a turbulent month dominated by a volatile surge in trading from retail investors concentrated in a handful of deep value equities with significant short interest. The HFRI Fund Weighted Composite Index® (FWC) gained +0.9 percent in January, while the investable HFRI 500 Fund Weighted Composite Index advanced +0.35 percent, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.

Reflecting the powerful trading trends, the HFRI FWC experienced a wide dispersion in constituent performance, as the top decile of the HFRI gained +11.6 percent, while the bottom decile declined -7.8 percent for the month. As reported previously by HFR, total hedge fund capital jumped to $3.6 trillion to begin 2021, a 4Q20 increase of $290 billion, representing the largest asset growth in industry history. Estimated 4Q20 net asset inflows totaled $3.0 billion, bringing total inflows for the second half of 2020 to $16.0 billion.

Event-Driven strategies, which often focus on out of favor, deep value equity strategies and situations, led strategy performance in January, with the investable HFRI 500 Event-Driven Index surging +3.0 percent for the month, while the HFRI Event-Driven (Total) Index gained +2.8 percent. ED sub-strategy gains were led by Merger Arbitrage, Special Situations, and Distressed exposures, strategies which categorically trade in deep value equity situations, including companies which are possible targets for restructuring, acquisitions or investor-driven strategy shifts. Following strong performance in 4Q20, the HFRI ED: Merger Arbitrage Index surged +4.0 percent in January, the HFRI ED: Special Situations Index advanced +3.8 percent, and the HFRI ED: Distressed Index added +2.6 percent. The investable HFRI 500 ED: Special Situations Index jumped +6.2 percent for the month, and the HFRI 500 ED: Merger Arbitrage Index advanced +5.1 percent.

The fixed income-based HFRI Relative Value (Total) Index gained +1.3 percent in January, while the HFRI 500 Relative Value Index advanced +1.2 percent for the month, led by the investable HFRI 500 RV: Fixed Income-Convertible Arbitrage Index, which jumped +3.5 percent, and the HFRI RV: Yield Alternatives Index, which added +4.0 percent.

Following the 2020 surge, Blockchain and Cryptocurrency exposures continued to deliver strong performance as cryptocurrencies hit record highs and as hedge funds increasingly incorporated related exposures into new and existing fund strategies. The HFR Blockchain Composite Index and HFR Cryptocurrency Index each surged over +48.0 percent in January.

Through intense stock volatility, the HFRI Equity Hedge (Total) Index advanced +0.8 percent for the month. Equity Hedge funds experienced a wide dispersion of sub-strategy performance led by the high beta, long-biased Energy and Fundamental Growth exposures. Following strong 4Q20 gains, the HFRI EH: Energy/Basic Materials Index surged +4.8 percent in January, while the HFRI EH: Fundamental Growth Index added +2.3 percent. Partially paring these gains, the HFRI EH: Sector-Technology Index declined -1.1 percent, and the HFRI EH: Multi-Strategy Index fell -0.8 percent for the month.

Risk Premia, Risk Parity and Liquid Alternatives produced mixed performance in January, led by equity and commodity exposures. The HFR Bank Systematic Risk Premia Equity Index advanced +2.2 percent for the month, while the HFR BSRP Commodity Index gained +1.6 percent. The HFR Risk Parity Vol 12 Institutional Index fell -0.2 percent in January, while the HFRI-I Liquid Alternative UCITS Index posted a narrow loss of -0.14 percent for the month, driven by the -0.3 percent decline in the HFRI-I UCITS Macro Index.

Uncorrelated Macro strategies posted a narrow gain in January, with the HFRI Macro (Total) Index advancing +0.2 percent, while the HFRI 500 Macro Index added +0.1 percent. Macro sub-strategy performance was led by the HFRI Macro: Discretionary Thematic Index, which gained +1.8 percent for the month, and the HFRI Macro: Multi-Strategy Index, which added +1.1 percent.

"Hedge funds effectively navigated the idiosyncratic stock trading volatility which focused on deep value equities with high short interest, with this trend driving gains across Event Driven strategies which categorically focus on inexpensive, out of favor equities that are experiencing fundamental, structural transition in the underlying businesses. While certain sub-strategies declined in January, as is evidenced by the wide dispersion in performance, as a direct result of the size, breadth and diverse nature of hedge fund strategies, overall industry performance was positive for the month," stated Kenneth J. Heinz, President of HFR. "While significant financial market attention has been focused on a handful of funds and small number of equities impacted by these recent trading trends, the overall hedge fund industry is comprised of over 9,100 funds managing nearly $3.6 trillion across a highly diverse range of strategies, which include significant capital exposure to out of favor, deep value equities. With an emphasis also on opportunistic positioning and sustained capital appreciation achieved through specialized long-short portfolio management, leading institutions are likely to continue expanding allocations to hedge funds as a tool for achieving their long-term portfolio objectives."

Finished First Week of Trading

I traded each day according to the rules and had 3 wins and 2 losses and ended up AUD 219 for the week. If that is a typical week then I would need to trade ten times bigger to make a decent "wage" from this. That would be 4 full futures contracts (AUD 670k notional value). But that would expose the account to a possible daily loss of AUD 50k during a market crisis like the March crash last year. I would feel that is just too much for even a AUD 1 million SMSF, though for our full portfolio it is reasonable theoretically. So, we would need to use a constant risk strategy to reduce the risk to AUD 10k every day. That also feels like a big risk in trading if it is a daily thing. So, I doubt we get up to that size of trading any time soon. 

If this is a successful strategy I will likely pursue trying to build an automated system later this year. I previously explored Capitalise, but found they couldn't implement a system like this with variable position size based on risk. So, unless they have improved it'd probably mean learning Python, but that isn't a bad thing...

Why a Constant Risk Trading Strategy Works

A constant risk trading strategy in the day-trading context is where your maximum loss possible is a constant. There are other definitions in trend-following etc contexts where you choose a position size so that the typical or expected daily movement up or down is a constant over time and markets.

Using the first definition, once you choose a stop loss, you compute the loss per contract or share if the stop was triggered and divide the fixed maximum loss figure by that to find out how many contracts or shares to buy. For example, if you are willing to risk $2000 on a trade and a contract will lose $1000 in the worst case, you buy (or sell) two contracts. 

The reason this works is the maximum downside loss is capped but by trading more contracts when possible the upside is increased. This helps create asymmetry. 

This graph shows possible loss on the x-axis and trading results (in backtest) on the y-axis, when trading one SPI contract over the last 13 months:

And this is what happens to the returns when the maximum loss is set at the average $2,300 (yes the stop loss can occasionally be exceeded when the opening price of the day is above the entry stop):

 

This has a lower information ratio (similar to Sharpe ratio but without deducting the risk free rate) than the one contract strategy though. It misses out on really big gains when volatility is high. But if you combine the two and set a minimum maximum loss at $2,300 you get better results than either strategy alone. Below $2,300 potential loss you trade a variable number of contracts and above it one contract only:

This has a higher information ratio than either simple strategy but it does take on a lot more risk at times than the constant risk strategy, which for a small account trading full size futures contracts could mean just not trading when volatility is high.

2nd Day of Trading

Today's trade was a winner, recovering a bit more than half of yesterday's loss. This is going to need a lot more research. Especially around the relationship between volatility and returns. I suspect that it's not worth trading when volatility is low and maybe there is an upside limit to how much volatility to tolerate. Now I have 13 months of data (from Barchart) nicely organized. Just need to merge all the spreadsheets together and test hypotheses.

Trading Once Again

Just over a year ago, I decided to stop systematic trading. This wasn't the first time. The problem with my trading systems was that they were overfitted to the data. They worked well for a while but then didn't. I did try one similar approach that is not tuned to the data. Yes, I said that this wasn't for me. But then over this weekend, I thought: "Maybe it is?" :) So, I downloaded a bunch more data and did backtests. It would have done especially well during the COVID-19 crash and OK in other months in the last year. So, I decided to try it today again. I used the Plus500 account, which I had decided to shutdown but hadn't managed to do yet. At least this allowed me to trade a smaller position - only AUD 10 per SPI point. The full size futures contract is AUD 25 per point. Well, I was stopped out for a AUD 960 loss... In the backtesting, getting stopped out is fairly unusual. Initially, the market fell and the short trade was profitable. Then it reversed and had a steep rally. 

 

Most losing trades have to be manually closed at the end of the day. So bad luck on my first trade. I'll try a few more and see how I go...

Treasury Wine Estates Rises Sharply on No News

Treasury (TWE.AX) rose sharply today with no announcement from the company or news in the media. At one point it was up 9%. This was on a day when the market was sharply down. It closed up 5.92%. I added to my position on the basis that my thesis was working out and that this spike would be continued.

Incentives for Charitable Giving in Australia

As there is no estate or inheritance tax in Australia, I think it makes much more sense to give money to charity while you are alive rather than in your will. If I give money in my will, my children will have less but no tax benefit from giving money. If I give while I am alive then I can claim a tax deduction. Or am I wrong?

P.S. 6 February

I thought of an alternative approach. You can write in your will that your children need to make contributions to charity from the money they receive. That way they can take tax deductions instead. The advantage of this is that if you are unsure if you will run out of money in retirement you can direct your children to make donations if you didn't run out of money. The downside is that they may not follow your directions. Maybe there is some trust structure that enforces this. Also, you don't get to see the benefits of your donations.

Started SMSF Process

I made it my new year resolution to finally set up an SMSF. This is the next step in our financial restructuring process. The final step will be estate planning. The idea is to put relatively high tax investments into the SMSF. Also, we will put direct holdings of US stocks into the fund, so that they aren't part of our estate. Yes, there is a tax treaty between Australia and the US, which would mean that we wouldn't pay any tax at the moment. But it is likely that the threshold for inheritance tax in the US will be reduced under the Democrats and there is still paperwork to do.

I have now started the process with SuperGuardian who seem to provide a lot of service with a lot of flexibility and have very good recommendations. All I've done so far is send in the client engagement form. The decisions I made so far are to use a corporate trustee and to use a Macquarie CMA as the fund's bank account. Apparently, one third of SMSFs use a Macquarie CMA and SuperGuardian's representative said a lot of their clients do too. A corporate trustee is a little more complicated and expensive in the short run, but seems more sensible in the long run. An SMSF with only individual trustees must have at least two trustees, while the corporate trustee can have a single director. As I am 11 years older than Moominmama, it's likely that she will end up being the only trustee/director unless we bring our children into the fund, or she involves at outside person as an additional trustee. She would also have to deal with all that and she currently isn't at all interested in any of this financial stuff.

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.
  

Berkshire Hathaway

 

I sold 2000 shares of the Boulder Income Fund (BIF) closing our position and bought 100 shares of Berkshire Hathaway (BRK/B) instead. Berkshire is BIF's largest holding and seems to recently be outperforming BIF. Additionally, it doesn't pay dividends and so is more tax effective. Berkshire has a relatively low valuation by several metrics compared to the US stock market in general. I think the company could become much more valuable after Buffett steps down as CEO as I expect the future managers will break it up. The position is quite small (less than 1%) as our whole target US stock allocation is only 5% of net worth.

I have held Berkshire in the past, a long time ago.

Hedge Funds Beat the S&P 500 in December

It's rare to see hedge funds beating the major stock indices to the upside these days, but that's what happened in December when the HFRI returned 4.47% and the S&P 500 3.84%. The MSCI World Index gained 4.68%. As a result our target portfolio actually returned 6.13% in US Dollar terms, though we still beat it, gaining 7.21%. In Australian Dollar terms it gained 1.26% rather than just breaking even as I reported a few days ago.

Contributions of Individual Investments 2020

 

As promised, here are the contributions of each of 62 investments to our annual investment return. Of course, these numbers (in Australian Dollars) depend on the size of each investment and I don't make any attempt to work out or compile the annual rate of return on all these investments (I do compute it for some). 

Compared to last year, gold again is a top contributor and Hearts and Minds and Pershing Square Holdings are gain near the top. Cadence Capital had a turn around this year for the positive and Platinum Capital for the negative. The large super funds did OK but last year they were the two top contributors.

There were two big disasters this year. Winton Global ALpha had a terrible performance losing 18% and Virgin Australia bonds were almost totally wiped out in the airline's bankruptcy.

The total number of investments was smaller this year as we gradually ran off our individual bond holdings and traded much less.

Annual Report 2020

Overview 
The main financial themes of this year for us was continuing to invest the money we inherited in late 2018 and surprisingly strong investment returns for the year after the sharp fall in markets in March due to the COVID-19 pandemic. In my academic career I was also surprisingly productive in the second half of the year following the struggle of dealing with closed schools and our move to online teaching in the first half of the year. We spent less for the year overall because of a reduction in spending during the lockdown and no travel. Our house fell in value, which was against the trend in the Australian housing market.

 

All $ signs in this report indicate Australian Dollars. As I did last year, I'll do a separate report on individual investments.

Investment Returns 
In Australian Dollar terms we gained 11.9% for the year and in USD terms we gained 23.2% because the Australian Dollar gained 10%. The MSCI gained 16.8%  in USD terms and the ASX 200 only 2.6% in AUD terms. The HFRI hedge fund index gained 8.9% in USD terms. Our target portfolio is expected to gain 6.8%. So, we beat all benchmarks this year.

 

This chart compares our portfolio to the benchmarks in Australian Dollar terms over the year:

 

We tracked the MSCI World Index very closely till May. After that we started to diverge. I posted equivalent Australian Dollar returns in the December monthly report. Here are annualized returns over various standard periods:

US Dollar returns are not very good over longer periods, but they still beat the HFRI, especially over the 3-5 year horizon. Here are the investment returns (currency neutral) and contributions of each asset class in 2020:

 

The contributions to return sum to the total portfolio return. Hedge funds and private equity had the highest returns and hedge funds by far the largest contribution to total return. Gold had the third highest return and the second highest contribution to total return. The rate of return on bonds is surprisingly good actually given the almost total loss of our Virgin Australia investment.

Investment Allocation
The main changes in allocation over the year was that we ran down our bonds allocation while increasing hedge funds, private equity, and gold mostly:

We started investing in art, which for the moment is grouped together with real estate.

Accounts
Here are our annual accounts in Australian Dollars:

There are lots of quirks in the way I compute the accounts, which have gradually evolved over time. There is an explanation at the end of this post. 

We earned $128k after tax in salary, business related refunds, medical payment refunds, tax refunds etc. This was down 13% on 2019 because Moominmama worked less and we had large tax bills due to investment income (investment income is reported pre-tax). We earned (pre-tax including unrealized capital gains) $370k on non-retirement account investments. The latter number was up on from last year. The former number continued its decline. The investment numbers suffered from the rise in the Australian Dollar ($67k in "forex" loss). Total current income was $498k. Not including mortgage interest we spent $121k. Total spending was down 18% on 2019 due to reclassifying mortgage interest as an investment cost since we paid off and redrew the mortgage and reduced spending due to the pandemic. Not counting mortgage interest, spending was down 9%.

$10k of the current pre-tax investment income was tax credits – we don't actually get that money so we need to deduct it to get to the change in net worth. We transferred $45k into retirement accounts from existing savings in "non-concessional (after tax) contributions. I list $2.4k of "inheritance". This is mostly due to adding the value of a painting I inherited, which I already had but hadn't included in net worth. The only other "things" included in our net worth are our car, a gold coin, and our house.

 
The change in current net worth, was therefore $324k. Looking at just saving from non-investment income, we dissaved $37k. So, before the transfer to retirement accounts we saved about $8k from salaries etc.

The retirement account is a bit simpler. We made $44k in pre-tax contributions (after the 15% contribution tax) and made an estimated $65k in pre-tax returns, which was strongly down on 2019. $8k in "tax credits" is an adjustment needed to get from the number I calculate as a pre-tax return to the after tax number. Taxes on returns are just estimated because all we get to see are the after tax returns. I do this exercise to make retirement and non-retirement returns comparable. Net worth of retirement accounts increased by $146k.

Finally, the housing account. I estimate that our house lost $34k in value. As our mortgage is now included in the current investment account there are no other entries in the housing account now.

 

Total investment gains were $401k, up 8% on 2019.

Total net worth increased by $436k,  which was up 12% on last year. $51k of this was from saving from non-investment sources, up 7% on last year. Thanks to employer superannuation contributions this was 30% of our total after tax non-investment income. Including investment gains our savings rate was 78% of our comprehensive after-tax income.

How Does This Compare to My Projection for This Year?
At the beginning of the year, I projected a gain in net worth of $425k, which turned out to be almost exactly correct. The baseline projection in my spreadsheet for 2021 is for a very high 19% rate of return, a 6% increase in spending, and flat other income, leading to an $800k increase in net worth to around $5.7 million. A more sensible projection would be for another $400k increase to around $5.3 million. Of course, anything could happen.

 
Notes to the Accounts
Current account includes everything that is not related to retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. However, property taxes etc. are included in the current account. Since we notionally converted the mortgage to an investment loan, mortgage interest is counted in current investment costs. So, the only item in the housing account now is increases or decreases in the value of our house. This simplified the accounts a lot but I still keep a lot of cells that might again be used in the future.

 

Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... 

 

For current accounts "core expenditure" takes out business expenses that will be refunded by our employers and some one-off expenditures. This year, there are none of those one-off expenditures. "Saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.