October 2021 Report

The run of winning months in Australian Dollar terms continued. We haven't had a losing month since March 2020. This is a 19 months run so far. As this was only a slightly positive return, it could become negative when all the unlisted investments report.

The MSCI World Index rose 5.36%, the S&P 500 by 7.01%, and the ASX 200 fell by 0.09%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7227 to USD 0.7518. We gained 0.07% in Australian Dollar terms or 4.10% in US Dollar terms. The target portfolio is gained 0.68% in Australian Dollar terms and the HFRI hedge fund index is expected to rise 2.54% in US Dollar terms. So, we underperformed the target portfolio benchmark and the two international indices but beat the HFRI and Australian indices. Here is a report on the performance of investments by asset class (currency neutral returns):

Private equity had the best performance but hedge funds contributed the most to performance followed by private equity. Several asset classes lost money. Gold performed worst.

Things that worked well this month:

• Pershing Square (PSH.L) gained AUD 26k and Tribeca Global Resources (TGF.AX) gained AUD 25k. Both, and especially PSH, are still well below their net asset values.
  

What really didn't work:

• Regal Funds (RF1.AX) lost AUD 27k following the rights issue and placement. Issuing more shares at NAV is sure to depress the stock price. Cadence Capital (CDM.AX) lost AUD 11k. The fall in the price of The Metals Company post-IPO is probably weighing down the share price.
  

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 are doing a bit worse than the median hedge fund levered 1.6 times. 

We increased our distance from our desired long-run asset allocation a little mostly due to the RF1 placement increasing our allocation to hedge funds. Private equity and bonds are both underweight and hedge funds and real assets overweight. I think having an allocation does make me think harder about overweighting in a particular direction but right now I am thinking of changing the allocation again by reducing the bond allocation to 5% from 10%. Our actual allocation currently looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• We participated in the Regal Funds (RF1.AX) rights issue and placement, buying 17k shares.
• To help fund this, I sold 4k shares of Ruffer Investment Company (RICA.L). This was a bad move, as it immediately finally started increasing. 
• I sold 25k MOT.AX shares (Australian corporate debt fund). The idea was to fund buying shares in the Cadence Opportunities IPO. But then I changed my mind about that.
• I made a concessional contribution to the SMSF of AUD 20k for Moominmama for this tax year. This replaces her previous salary sacrifice contributions to PSS(AP).
  

Moominpapa's 2020-21 Taxes

I am finally able to submit my taxes for this year. Last year's taxes are here. Here is a summary of my taxes. To make things clearer, I reclassify a few items compared to the actual tax form. Of course, everything is in Australian Dollars.

On the income side, Australian dividends and franked distributions from managed funds are  up strongly. My salary still dominates my income sources but is not growing. Interest is Australian interest only and is zero due to no longer holding Australian bonds.

Unfranked distributions from trusts is down strongly because the distribution from APSEC was exceptionally large last year. I have now moved the APSEC fund to our SMSF. Foreign source income is from foreign bond interest and distributions and dividends both from directly held foreign investments and from Australian managed funds. Other income is gains on selling bonds. These aren't counted as capital gains. As we have few bonds any more the amount is small. I used most of my carry forward capital losses this year reducing the net capital gain to zero. I am still carrying forward $28k to next year.

In total, gross income fell 2%.

Increased deductions are mostly due to writing down the loss on my Virgin Australia bonds. This isn't counted as a capital loss and can be deducted immediately. Dividend, foreign source income, and trust deductions are all mostly interest on loans.

Total deductions rose strongly, and as a result, net income fell 9%.

Gross tax is computed by applying the rates in the tax table to the net income. In Australia, you don't enter the tax due in your tax return, but I like to compute it so that I know how big or small my refund will be.

Franking credits (from Australian dividends), foreign tax paid, and the Early Stage Venture Capital (ESVCLP) offset are all deducted from gross tax to arrive at the tax assessment. This time because of the Virgin Australia loss and the ESVCLP offset I should get a large refund.

I estimate that I will pay 24% of net income in tax. Tax was withheld on my salary at an average rate of 31%.

Cadence Opportunities IPO

Another "corporate action" to consider. Cadence Opportunities Fund attempted an IPO about three years ago, which failed. I invested in the fund at a second fund-raising. Now it is again attempting an IPO and attempting to triple funds under management in the process. I was thinking to buy more shares in the IPO and even moved money from one account to another to do so, but then had second thoughts. Don't get me wrong, this is so far a great investment. I have a 50% internal rate of return on my investment. But after reading the independent report I became concerned that the price might trade below the IPO price and so it would be better to wait to buy shares on market. On the other hand, if the fund keeps performing so strongly, the increase in the NAV might outweigh an illiquidity discount... But given we have 3% or so of net worth in the fund already, I think I will give it a pass.

Corporate Actions

Two current "corporate actions". Regal Funds (RF1.AX) announced a 1 for 3 rights issue at the net asset value of AUD 3.79 per share. Price prior to the announcement was AUD 4.47 per share. I plan to fully take up the entitlement. The question is what do I sell in our SMSF to take up the offer as I only have AUD 27k in cash and will also need to pay taxes etc some time... The rights issue will cost AUD 55k.

Australian Unity Diversified Property Fund announced that they plan to merge with the ASX listed Australian Unity Office Fund (AOF.AX). The joint fund will continue to be listed on the ASX. There are four reasons I will vote against this merger:

1. The reason I invested in an unlisted property fund is to not be exposed to stock market fluctuations in the value of the fund.

2. We will receive shares in AOF according to the current NAV of that fund. Its price on the ASX is much below that. That means that the market value of our shares will instantly fall.

3. I invested in a diversified fund because I didn't want to just be exposed to office property. The new fund will be dominated by offices.

4. The reason for the merger is supposedly to allow easier capital raising for the development pipeline while not increasing the gearing of the fund. The gearing will actually fall. I wanted to be in a geared fund.

P.S. 28Oct21

I just read the AOF annual report. It is much less profitable than Australian Unity Diversified Property Fund despite not charging performance fees. Or maybe because of that? It's surprising that they are looking to give up those fees! That is a fifth reason to vote no. I will withdraw our investment prior to listing if the merger is approved. According to the fund we get six days to withdraw after the meeting. Two of them are a weekend. But usually they only allow a maximum of 2.5% of the fund to be withdrawn per quarter. So, now I am seeking clarification on that. The merger document is a bit vague on how much withdrawals will be allowed.

September 2021 Report

This month world stock markets finally declined. But we gained a little in AUD terms,* showing the value of our alternative assets strategy. In Australian Dollar terms we haven't had a losing month since March 2020. This is an 18 months run so far. The previous longest runs were the 10 months ending in September 2019 and the 10 months ending in April 2013. It could be that one of my late reporting investments comes out negative enough to overturn the positive result, but I'm not expecting that.

The MSCI World Index fell 4.09%, the S&P 500 by 4.65%, and the ASX 200 by 1.49%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7314 to USD 0.7227. We gained 0.11% in Australian Dollar terms or lost 1.08% in US Dollar terms. The target portfolio is expected to have lost 1.27% in Australian Dollar terms and the HFRI hedge fund index is expected to fall 1.86% in US Dollar terms. So, we outperformed all benchmarks, which is exactly opposite to what happened last month (again). The most important reasons for outperformance were the gains in hedge funds. Here is a report on the performance of investments by asset class (currency neutral returns):

Futures had the best performance but hedge funds contributed the most to performance followed by private equity. Australian large cap had the worst performance and detracted by an equal amount to gold.

Things that worked well this month:

• Regal Funds (RF1.AX) gained AUD 30k, Pengana Private Equity (PE1.AX and the spin-off of PCG.AX shares) gained AUD 17k, and Tribeca Global Resources (TGF.AX) gained AUD 15k.
  

What really didn't work:

• Gold lost AUD 18k, Cadence Capital (CDM.AX) AUD 18k, and Fortescue Metals (FMG.AX) AUD 12k.
  

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 are doing a bit worse than the median hedge fund levered 1.6 times. 

We maintained about the same distance from our desired long-run asset allocation while the allocation to hedge funds rose. Real assets equity is the asset class that is now furthest from its target allocation (3.6% of total assets too much). Our actual allocation currently looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• USD 35k of Ford bonds matured.
• I sold 5k RF1 shares as their price spiked.
• I bought 20k TGF.AX shares based on insider buying and thinking that the price was about to break out above the IPO price. It didn't yet.
• I bought 31k CDM.AX shares following the IPO of TMC. TMC promptly tanked. So neither of these hedge fund purchases was a good idea so far.
  

* The first version I posted of this month's accounts showed a small loss because I accidentally included an AUD 14k margin loan in our Australian Dollar cash, making it smaller than it should have been. I knew there was a mistake somewhere because the implied change in the value of the portfolio due to exchange rate movements was much too big.

Moominmama's 2020-21 Taxes

I finished Moominmama's taxes for this financial year. I still need the details of my venture capital investment tax offset to complete mine. The post about last year's taxes is here. Here is a summary of Moominmama's tax return:

Her salary was down steeply as she went back to work part time after being on maternity leave at full time, though the full time pay was only paid for part of the year she took off. Dividends managed fund distributions, and foreign source income were all up steeply. A quirk of the system is that foreign gains are treated as income and losses on trading foreign instruments are recorded as deductions. Capital gains were up 148% and dominated her income. This was largely due to recording capital gains on investments that we transferred into our SMSF. On the deductions side, other deductions includes interest for foreign source income and trading losses.

Net income increased 55% and tax 110%. The latter is my estimate of the tax she owes. You don't need to calculate this number on an Australian tax return. Her average tax rate was 20%. Remember, that there are no state income taxes in Australia. Only AUD 2,808 was withheld from her salary. We paid AUD 3.886 in quarterly installments. I calculate that we still owe AUD 11,203.

FI or FIRE?

 

I wrote about FIRE (Financial Independence Retire Early) at least once before. The Retire Early bit is the problematic bit. It makes much more sense for people to use financial independence to do what they want to do rather than just stop working.

A while back I heard that Mr Money Mustache got divorced. Seems his wife wanted to spend more money given their high income. But that wouldn't fit with his frugality message. Now here is a FIRE blogger who retired with a small nest-egg - so-called "lean FIRE". His wife got tired of not spending much either and of having too much leisure time and not making "progress" in life. And here is another blogger who is tired of not having enough money. Many FIRE bloggers who supposedly retired actually work on their blogging business. They stopped being an employee and became self-employed. This is great.

With a net worth of approaching AUD 6 million we are financially independent by any reasonable definition. But I'm not planning on retiring. As I mentioned before, I like my job, at least the research part. I am hoping to not ever teach more than one course a year again. I am sacrificing more than AUD 40k to take long-service leave next year to reduce my teaching load. After that I am planning to take on a "leadership role" for a while and once I turn 60 I hope to go part-time. Also, I don't want to sacrifice the "prestige" and become a nobody. Unless we plan on moving somewhere else, it seems to make sense to do my very flexible job.

And actually I am thinking that our money isn't enough. Our older child is going to private school and the younger one probably will too. The alternative is to move to a top public school catchment area. My wife isn't happy with the public schools here, though I think they are fine. With the way the property market is going that means an AUD 2 million + house price. Or maybe move to Sydney because the best public schools in Sydney are better than the private schools here. My wife puts a big weight on education. I thought Jewish parents like my parents and me were into education. Chinese parents are at another level.

And, actually, I did the retire early bit already. I just wasn't financially independent.

August 2021 Report

It was another month of increases in world stock markets. The MSCI World Index rose 2.53%, the S&P 500 by 3.04%, and the ASX 200 rose 2.75%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7350 to USD 0.7314 We gained 0.51% in Australian Dollar terms or  0.01% in US Dollar terms. The target portfolio is expected to have gained 1.89% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.23% in US Dollar terms. So, we underperformed all benchmarks, which is exactly opposite to what happened last month. The most important reasons for underperformance were losses in Tribeca Global Resources (TGF.AX), Fortescue Metals (FMG.AX), and Hearts and Minds (HM1.AX). Here is a report on the performance of investments by asset class (currency neutral returns):

Hedge funds had the best performance and contributed the most to performance despite the bad performance of TGF.AX. Large cap Australia stocks were the only asset class with a negative performance.

Things that worked well this month:

• Cadence Capital (CDM.AX) was the top performer, gaining AUD 16k (or 9%) with good performances from Pershing Square Holdings (PSH.L), Regal Funds (RF1.AX), Unisuper, PSSAP etc.
  

What really didn't work:

• The worst performers were Tribeca Global Resources (-AUD 22k or -10%), Fortescue Metals (-AUD 16k, -17%), and Hearts and Minds (-AUD 11k, -5%). The latter two have regained most of their losses so far in September.
  

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 are doing a bit worse than the median hedge fund levered 1.6 times.  

In Australian Dollar terms we haven't had a losing month since March 2020, which must be a record. It feels like this can't continue, but on the other hand, Central Banks continue to print money. I long projected that we would reach a net worth of AUD 6 million by my 60th birthday. We are now at AUD 5.7 million and the projection has gone up to AUD 8 million. This seems pretty crazy. But the way house prices are going and the probability that we might want to move means that I will continue to work full time for now. As long as my job doesn't stop us doing something else we want to do, I might as well do it, I think.

We moved closer to our desired long-run asset allocation by buying RF1 shares (a listed hedge fund) and investing in pre-IPO company IPS (see below). Private equity is the asset class that is now furthest from its target allocation (3.6% of total assets too little). This problem will solve itself as Aura Venture Fund II calls more capital. Our actual allocation now looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• I bought 100,000 Australian Dollars by borrowing US Dollars.
• I invested AUD 100k in a pre-IPO company, Integrated Portfolio Solutions.
• I bought back 46,871 shares of Regal Funds (RF1.AX) after the price fell to a lower premium to NAV. I sold 20,000 shares of MOT.AX to help fund it.
• I bought 1,000 shares of PMGOLD.AX, a gold ETF.
  

Most People Think They are Financially Average

Well not quite. But people think they are more average financially than they are, on average.

But the strange thing is that most people think they are more intelligent than average. Was just chatting with someone on Twitter who stated that the norm in Australia is to get paid weekly and most people don't own a house. In fact, 67% of homes are owner occupied and getting paid every two weeks is most common. On the other end of the spectrum, my wife thinks our financial situation is "normal", when according to the statistics we are in the top few percent.

Effect of Updates on Reported Returns

The final numbers are now in for the first half of this year with the report of a venture capital fund for June. I was curious how different the final monthly returns were to the ones I reported after each month on the blog:

There is a big change for the final month, mostly because of the strong return of the venture capital fund.

Top Baggers

Meb Faber refers to the total gain on an investment over time in terms of "baggers". If you invested $1,000 and made $9,000 then that is a 10-bagger.

I was wondering what my best investment measured this way was. I previously calculated this using internal rate of return. But it is easier to get a high IRR on an investment held for a short time than one held for the long term. Which of my investments gained the most over time?

If you invest $1,000 and now have $1,000 of profit it is easy to see that this is a 2-bagger. This is the way venture capital firms typical report the value relative to what they put in. But what if you added more to the investment over time? What if you sold out for a while and then bought back? Or traded in other ways?

I realized we could get an approximation in these cases using the following pseudo-formula in Excel:

Bags = (1+IRR)^(COUNT(X:Y)/12)

IRR is the internal rate of return I already have. The count formula counts how many cells have an entry in them. I created a column with the following formula in it:

=IF(Z=0,"",1)

where Z are cells with the number of shares held each month. It returns a blank if the number is zero. We then apply the previous formula to this column (i.e. the range X:Y). 

I've now applied this to all my currently held investments. The median investment is 1.42 (gold). The worst is 0.80 (PSTH) and the best is CFS Developing Companies at 9.69. I think my best ever investment is Colonial/Commonwealth Bank which scores 13.01. I bought Colonial shares at the demutualization. I haven't computed this for all past investments yet. Gold is also my current median investment by IRR (12.4%).

So here are the top ten current investments using "bags", IRR, and total AUD gain :

There is some overlap between the columns. Regal Funds and Pershing Square show up in all three. The IRR column though highlights several recent investments that have done well like WCM Global Long-Short (WLS.AX) and WAM Strategic Value (WAR.AX). The top two in the last column are our two superannuation funds that also appear in the bags column and have a lot invested in them.

Local Housing Market is Red Hot

This morning I got a text from a real estate agent offering to send me an updated appraisal of our house's value because "prices are spiking". Then, on the way home from work I noticed a sale board in the neighboring development advertising an upcoming auction. In the corner, a small sticker had been stuck: "sold". When I tried to search for this house online, I found another one in the same development that sold last weekend pre-auction.

P.S. 14 August 2021

The price the second house sold for has now been posted. AUD 900k. That is a 100% increase on the original price, a new neighborhood record. It pushes the estimated value of our house to just over AUD 1 million.

P.P.S. 31 August 2021

Domain are now reporting that the first house (pictured) sold for AUD 976k or 124% above the original price! That would add another 6% to the estimated value of our house.

New I Will Teach You to be Rich Podcast

 

 

Ramit Sethi has started a podcast titled of course: "I Will Teach You to be Rich" and subtitled: "Real money stories from behind closed doors".  It's like a couples therapy session with Ramit as counsellor. It's great, but often the numbers don't seem to add up. For example, this couple makes USD 250k between them. Let's take off 1/3 for taxes etc. They say they spend just over 10% on housing and save 20%. They have "very low expenses". The guy scrimps and saves on everything. But, apart from what I listed, they would have to have another USD 90k in expenses. That's near what our family of four spends on everything including housing and private school and daycare. So, what is really going on here? Does the woman spend a lot of that on her own outside the household budget stuff? So this doesn't sound like "very low expenses" to me.

July 2021 Report

It was another month of increases in world stock markets. The MSCI World Index rose 0.72%, the S&P 500 by 2.38%, and the ASX 200 rose 1.11%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7500 to USD 0.7350. We gained 2.96% in Australian Dollar terms or  0.90% in US Dollar terms. The target portfolio is expected to have gained 2.31% in Australian Dollar terms and the HFRI hedge fund index is expected to lose 0.33% in US Dollar terms. So, we outperformed all benchmarks. Here is a report on the performance of investments by asset class (currency neutral returns):

Gold contributed the most to performance followed by real assets, Australian large cap, and private equity.

Things that worked well this month:

• Gold gained AUD 32k followed by WAM Alternative Assets (15k), US Masters Residential Property Fund (URF.AX, 14k). The latter gained 23% for the month.
  

What really didn't work:

• The worst performers, not surprisingly, were the two Pershing Square Funds: PSH.L (-AUD 12k) and PSTH (- 10k). The SEC stopped Bill Ackman's planned purchase of shares in Universal Music. Now the hedge fund, PSH.L, will have to buy more than planned and the SPAC, PSTH, will have to look for another deal. Third worst was, also not surprisingly, the China Fund (CHN, -7k).
  

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 are doing about the same as the median hedge fund levered 1.6 times. 

We maintained roughly the same distance from our desired long-run asset allocation. Hedge funds is the asset class that is now furthest from its target allocation (4.7% of total assets too little). Our actual allocation now looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month, which was a relatively quiet month:

• I bought 10,000 shares of Pengana Private Equity (PE1.AX) around its announcement of a good gain in NAV.
• I bought 1,000 shares of Scorpio Tankers baby bonds (SBBA).
• I closed a losing soybeans trade.
• I bought shares in another painting.
• I transferred my shares in the Macquarie Winton Global Alpha Fund to our SMSF.
  

Coinvestment, Revised Target Allocation, and Rights Issue

I'm making an investment in a pre-IPO company alongside a venture capital fund and other investors. I valued the company based on their forward projections for EBITDA and the multiples similar companies listed on the stock exchange have. Of course, the company could fail and so it is sensible to take a middle valuation between the extremes of zero value and the value if the company succeeds as planned. This still gave a good gain on the current valuation. In reality, total loss is unlikely as the company is already approaching profitability. The funding is for expansion. The worst outcome is more likely a sale for the current valuation or something less to a competitor. I am planning to invest about 2% of our portfolio in this company.

This means I will have to raise my target allocation to private equity and reduce my allocations to hedge funds and long-only equities. To also take into account my future commitment to a venture capital fund I am increasing the private equity allocation of gross assets from 10% to 15%. I am reducing the hedge fund allocation from 24% to 22%, Australian large cap from 9% to 8%, US stocks from 6% to 5%, and rest of the world stocks also from 6% to 5%. I would be happy to have an even higher allocation to private equity if I had access to enough diverse good quality opportunities. So, changing the target allocation isn't just like the US government raising its debt ceiling every time they hit it :)

By contrast, I am an investor in listed company Domacom (DCL.AX), which has been suspended from the ASX for a while, pending completion of a deal to effectively acquire a company called AustAgri. The ASX instructed them to raise more capital before relisting. I don't intend to participate in the rights issue, especially as the issue price is slightly above the last traded price of the shares on the ASX. Success of the company in the short-run really depends on this AustAgri transaction and it is still hard to be certain why it is so delayed and what will happen. Even after that transaction, the company will not be in anywhere near as good a position as this pre-IPO company.

Next Steps

We have now executed a major part of the financial plans I developed in 2018. We deployed almost all the inherited capital - we still have some Ford bonds, which were intended as a short term investment, we have completed the initial set up of the SMSF and set up accounts for our two children. We have a much more diversified portfolio. So, on the investment front it will now be more business as usual going forward. I explored trading and made a little money but haven't got to the stage of setting up a proper system. This is something I will need to revisit very soon. To decide once and for all if that is a direction I want to take. If I do it, it would be in collaboration with some other people I know. The other major thing we haven't done is estate planning. I wanted to get the SMSF done first. So, we should really look at that seriously soon too.

Time-weighted Versus Dollar-weighted Returns

There was an interesting comment in the latest Millionaire Interview at the ESI Blog:

"I find it a bit silly how most people focus on their time-weighted returns instead of their asset-weighted returns... Your financial freedom is affected by your asset weighted returns, not your time weighted returns."

I have thought about this before, but not exactly in these terms. This is an interesting way of putting this idea. 

The way I thought about it is: When you start investing you will probably make mistakes. But you will have less money and so they matter less. What matters more is what your returns are when you have a lot of money.  So, you can afford to pay some tuition fees. I really paid too much tuition...

This graph shows an index of my returns in Australian Dollar terms starting at 1000 in 1996:

Initially, I did well. But then the dot.com crash came and I started losing, ending up below where I started. Then I rode the next bull market. I started getting out as the financial crisis began to appear. But I got back in again too early and crashed. I wasn't quite back to square one, but not far from it. Not much happened in the next few years following the crisis and then things took off from 2012 on. These are my time-weighted returns.

In the last 10 years, my rate of return has been 11.1% vs. 12.0% for the ASX 200. In the last 20 years it was 4.8% vs. 10.6% for the ASX 200. Since "inception" the numbers are 6.2% and 11.2%. I got through the COVID-19 crash a lot better than the previous bear markets. Hopefully, that improvement will be maintained in the future.

The following graph shows relative out-performance compared to the ASX 200 over every time horizon:

The way to interpret this is: If you invested with me in 1996 then you would have under-performed the ASX 200 by 4-5% p.a. since then. However, if you invested with me in some months in 2012 you would have matched or just beaten the ASX 200 since then. Similarly, investing in the year before the COVID-19 crash you would now be ahead of the ASX. Investing with me in the year after the COVID-19 crash you would be behind the ASX and so forth.

This graph shows my absolute profits in Australian Dollars:

A simple way of showing dollar-weighted returns. Basically, things went nowhere till 2012. All the gains have happened since then. So, I "wasted" 15 years learning to invest while saving.

Including Neighboring Development Sales in my House Price Model

This graph shows the increase as a fraction of the original when new sales price in two neighboring developments in our city since the beginning of 2015. The green dots are in our development and the red dots in the neighboring development, which was built by the same developer a year earlier:

The final red dot is the recent AUD 1.3 million sale. Using the increase above the initial price automatically adjusts for the different characteristics of each house sold. I only include free-standing houses. Our development also has row townhouses.

Prices are trending up over time in both developments but clearly houses are selling for greater premia in the neighboring development. By an average of 19%. But I think this is just because it was built earlier. When we use a logarithmic y-axis the two trendlines are almost parallel:

Therefore, I think it is valid to include the two developments in one model and just include a dummy variable for the neighboring development. Based on the analysis our house would be worth AUD 970k.

Sale in Neighbouring Development for AUD 1.3 Million

This house is in the sister development to ours on the other side of the hill. It borders the reserve just like ours. The house is a bit bigger than ours and so should sell for a higher price. But it sold for an 88% premium on its original 2007 price. Recent prices in our development have been for 25-35% premia on the original 2008 prices. I am valuing our house at a 31% premium to the 2008 price or 19% more than what we paid in 2014. I've been surprised at the sluggishness of prices in our development compared to the city as a whole. Maybe I should use prices from this neighbouring development too when estimating the value of our house?

 

If I do use data from this development as well, the current value of our house increases by about AUD 80k or 10%.

Career Plan

A couple of months ago I discussed my career decision making issues. I made a decision and will take long service leave next year and reduce my teaching load. I will drop my current courses and teach a new (for me) course in the second half of the year instead of teaching in the first half of the year. In the two years following that I plan to continue teaching the reduced load while taking on a "leadership" position. This takes me to the end of 2024 when I will 60. At that point I will either go half time or retire depending on the situation. Anyway, that's the plan at the moment. My immediate "boss" knows agreed to the plan for 2022 and the "boss" at the next level knows the 2023-24 plan. No-one has the full picture.

Spending 2020-21

For the last four years I've been putting together reports on our spending over the Australian financial year, which runs from 1 July to 30 June. This makes it easy to do a break down of gross income including taxes that's comparable to many you'll see online, though all our numbers are in Australian Dollars. At the top level we can break down total income (as reported in our tax returns plus superannuation contributions):

The gross income for this year is just an estimate. Tax includes local property tax as well as income tax and tax on superannuation contributions. Investing costs include margin interest. Mortgage interest is included in spending, while mortgage principal payments are considered as saving. Spending also includes the insurance premia paid through our superannuation. Current saving is then what is left over. This is much bigger than saving out of salaries because gross income includes investment returns reported in our tax returns. The latter number depends on capital gains reported for tax purposes, so is fairly arbitrary. Still, it has increased each year over this period. Spending also increased until this year when it was flat. Graphically, it looks like this:

We break down spending into quite detailed categories. Some of these are then aggregated up into broader categories:

Our biggest spending category, if we don't count tax, is now childcare and education, which has risen steeply. Given this it is surprising that spending didn't increase this year. Commentary on each category follows:

Franking credits: Income reported on our tax returns includes franking credits (tax paid by companies we invest in). We need to deduct this money which we don't receive as cash. Foreign tax paid is the same story.

Life and disability insurance: I have been trying to bring this under control and the amount paid has fallen as a result.

Health: Includes health insurance and direct spending. Spending peaked with the birth of our second child.

Housing: Includes mortgage interest, maintenance, and body corporate fees (condo association).

Transport: Continues to rise as I spend more on Uber and e-scooters and Moominmama drives more.

Utilities: This includes spending on online subscriptions etc as well as more conventional utilities.

Supermarkets: Includes convenience stores, liquor stores etc as well as supermarkets.

Restaurants: This was low in 2017-18 because we spent a lot of cash at restaurants. It's low this year because of the pandemic.

Cash spending: This has collapsed. It's hard to believe it is really that low, but that's what the numbers say. Moominmama also gets some cash out at supermarkets that is included in that category.

Department stores: All other stores selling goods that aren't supermarkets. No real trend here.

Mail order: This continues to rise. For example, I recently bought a new iMac by mail order.

Childcare and education: We are paying for private school for one child, full time daycare for the other, plus music classes...

Travel: This includes flights, hotels etc. It was very high in 2017-18 when we went to Europe and Japan. This year it was down to zero due to the pandemic and having a small child. We haven't travelled in Australia either. With the family it needs a lot of planning and borders are likely to suddenly close.

Charity: A growing category.

Other: This is mostly other services. It includes everything from haircuts to professional photography.

Clearly, we only kept spending under control in 2020-21 because we have stopped spending on travel and greatly reduced spending on restaurants.

June 2021 Report

This month I completed the review of all our investments.

The Australian Dollar fell from USD 0.7738 to USD 0.7500. It was another month of increases in world stock markets. The MSCI World Index rose 1.35%, the S&P 500 by 2.33%, and the ASX 200 rose 2.32%. All these are total returns including dividends. We gained 1.16% in Australian Dollar terms or lost 1.95% in US Dollar terms. The target portfolio is expected to have gained 2.32% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.68% in US Dollar terms. So, we underperformed all benchmarks. Here is a report on the performance of investments by asset class (currency neutral terms):

Gold detracted the most from performance followed by private equity and futures. Hedge funds contributed the most followed by large cap Australian shares. The reason we under-performed the target portfolio were mainly that we had a negative private equity return rather than a strongly positive private equity return and our international stocks didn't perform as well as the index.

Things that worked well this month:

• Regal Funds (RF1.AX) gained a lot (AUD 28k) before going ex-dividend on the last day of the month. I sold into the rally. Hearts and Minds also did well (14k).
  

What really didn't work:

• Gold lost 30k followed by Cadence Capital losing 8k. Aspect Diversified Futures debuted with a $4k loss though Winton and soybean trading both made gains. 3i, Pengana Private Equity, and Pershing Square Tontine Holdings all lost money in the private equity category.
  

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 are doing a little worse than the median hedge fund levered 1.6 times. 

We moved a little away from our desired long-run asset allocation. Hedge funds is the asset class that is now furthest from its target allocation (4.25% of total assets too little) following selling most of our Regal Funds shares.

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold most of our Regal Funds (RF1.AX) shares as the price soared above NAV.
• I bought shares in my tenth painting at Masterworks for USD 10k.
• Following the investments review, I closed our holding of CFS Future Leaders and CFS Diversified Fund and increased our holdings of CFS Imputation Fund, CFS Developing Companies, and opened a position in Aspect Diversified Futures.
• I sold our holdings of two baby bonds: SBBA and SBKLZ.
• USD 15k of our Ford bonds were subject to an early call.
  
• I bought 8,000 more shares of Ruffer Investment Company (RICA.L) doubling our position.
  
• I opened a position (3,000 shares) in Pershing Square Tontine Holdings (PSTH).
• There was a net increase in our holding of MCP Income Opportunities (MOT.AX).
• I increased and rolled our position in the soybeans future calendar spread. I bought a put option as well which was a losing trade.
  
• I added 1,000 shares to our PMGOLD.AX position.
• We received 83,320 shares in the WAM Strategic Value (WAR.AX) IPO.
  
• There were a lot of foreign currency transactions, but I'm not going to try to summarize them.
  

Update on PSTH

Bill Ackman posted a link to this presentation on Twitter. I have 3,000 shares or a 2% of net worth position. We also have 5,000 shares of PSH.L, Ackman's hedge fund that will be buying $1.5 billion of UMG shares by buying PSTH shares. Vivendi shareholders vote on Tuesday to approve the listing of UMG (hopefully) and presentations take place on Wednesday morning US time.

Investments Review: Part 8, Managed Futures

Managed futures have not performed well in recent years, but I am betting that they will make a bit of a comeback.

Macquarie Winton Global Alpha Fund. Share of net worth: 3.53%. IRR: -0.3%. This is a Macquarie Bank fund that provides access to the Winton fund management firm. Winton, Aspect, and Man AHL are all offshoots of the same original Adam, Harding, and Lueck team. Our profits in this fund peaked in August 2019 at AUD 29k and then fell to a minimum of AUD -19k in November 2020. Since then they have recovered to near break even.

Aspect Diversified Futures. Share of net worth: 2.04%. IRR: n.a. We hold this recent investment via the Colonial First State platform. It has performed better than Winton recently:

Investments Review: Part 7, Bonds

MCP Income Opportunities Fund (MOT.AX). Share of net worth: 1.75%. IRR: 14.8%. This fund invests in Australian private credit. It yields around 7% per annum. It performed better than other similar listed funds during the COVID crash. We use this to park cash that we don't need immediately as it pays more than our margin loans cost.

Ford. Share of net worth: 1.46%. IRR: 2.1%. We own two Ford bond issues that mature later this year. This is the tail end of the bond investments we made with the inherited money while we decided how to deploy it.

Ready Capital (RCB). Share of net worth: 0.77%. IRR: 5.3%. This is a so-called baby bond. These trade on US stock exchanges and usually have an issue and redemption price of $25. The distributions are considered to be interest but they have none of the other peculiarities of actual bond issues. They usually have high yields. This issue matures in July 2022 and has a "coupon" of 6.2%.

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

Investments Review: Part 5, Private Equity

The private equity category includes both venture capital, buyout funds, and SPACs, which acquire private companies to take them public.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About a quarter of this fund is allocated to venture capital (one quarter is in real estate and half in real assets, mainly water rights). This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV and for exposure to real assets like water rights. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

Aura Venture Fund I. Share of net worth: 3.05%. IRR: 20.0%. This is an early stage venture capital fund run by Australian/Singaporean company Aura. It invests in Australian start ups. This fund actually has a negative tax rate – fund earnings are tax free and you get a 10% tax offset on your investment contributions. This is part of the Australian government's policy to encourage start-up companies. None of its investees has failed, though some are now valued below the fund's initial investment price. Some have done really well. Shippit is the star. Some investees have already been exited or are on the way there. The latest is Superestate, which is a residential real estate super fund acquired by Raiz. Superestate has been struggling due to the incompetence of the ATO. The fund is receiving shares in Raiz, which is listed on the ASX, which value the company below the carrying value. Hopefully, Raiz will do well and the shares will gain in value.

Pengana Private Equity (PE1.AX). Share of net worth: 2.40%. IRR: 15.3%. This fund invests in mostly North American private equity (but also in Europe) via funds managed by its partner Grosvenor Capital Management. There are a LOT of fees in this structure, but when I attended the pre-IPO presentation I was persuaded that there was still upside for investors. Initially the share price performed very well and I made money trading the stock. But then the firm issued more shares and the price has settled at NAV. It has struggled to make headway due to the rise in the Australian Dollar negating the gains on the underlying funds. So, the IRR mostly reflects my earlier trading.

3i (III.L). Share of net worth: 2.06%. IRR: 13.8%. This is my oldest private equity investment. I first invested in 2008, during the GFC. By investing in this company, you invest in the business itself, but also in its investments. The firm invests its own capital as well as managing outside funds. When I first invested, the firm invested in venture and buyout. It has pivoted to invest in buyout and infrastructure. It also manages far less outside money than it did. I haven't really been following the company in detail recently until I had to write this report. The proprietary capital is mostly invested in private equity. The fund invests mostly in Europe (but also in North America).

Aura Venture Fund II. Share of net worth: 1.40%. IRR: n.a. Based on the success of Aura VF I, I invested 2.5 times as much money in their next fund. It has not yet made any investments. The initial investment is 25% of the total. So, this would be about 5% of our current net worth when fully invested (not counting any returns on top of that).

Pershing Square Tontine Holdings (PSTH). Share of net worth: 1.35%. IRR: n.a. My newest investment. Pershing announced that they are going to acquire a 10% stake in Universal Music (UMG), which Vivendi is taking public in the next couple of months. But that will leave cash in PSTH and Ackman has a convoluted plan for keeping the company going as a private equity company, acquiring private companies and taking them public. Investors didn't like the UMG deal, but I think it is worth being in on the potential upside of future deals.

Pershing Square Tontine Holdings

This video was posted on Reddit and endorsed by Bill Ackman on Twitter. I had been thinking about buying into Pershing Square Tontine Holdings in the last few days since the Universal Music deal was announced. I now took the plunge, buying shares in our SMSF. I'm still pretty unclear about the details or what it means for Pershing Square Holdings shareholders like us, but I'm figuring that this should have a higher value. 

I'm going to classify this as private equity, which now totals 9% of total assets.

BTW, Neri Oxman denies that she was Brad Pitt's girlfirend.

Investments Review: Part 4, Hedge Funds

Regal Funds (RF1.AX). Share of net worth: 5.63%. IRR: 45.7%. This is a multi-strategy hedge fund listed on the ASX that has performed very well since the COVID crash:

It has a beta of one to the stock market but has added a lot of alpha. The downside is that it has a trust structure and, therefore, pays out all profits in the form that they were earned in. So, it is not very tax-effective. We have now moved our holding to our SMSF. The stated focus is on Australian stocks, but they hold a lot of foreign stocks too.

Tribeca Global Natural Resources (TGF.AX). Share of net worth: 5.57%. IRR: 19.2%. This a global resource sector focused hedge fund listed on the ASX. From launch the price collapsed from $2.50 to under $1. They also lost a lot of money on a large loan to a US based coal mining company. They now have revised the investment guidelines to prevent a recurrence. The NAV is now above the IPO price and the stock price is almost there. We have gained a lot by buying when the price was depressed as well as in after-tax terms by selling when the price was depressed to take a tax loss.

Pershing Square Holdings (PSH.L). Share of net worth: 5.33%. IRR: 39.8%. This fund is listed on the London stock exchange but managed by Bill Ackman, a famous US hedge fund manager. The fund is very focused. They invest in around 10 large cap mostly US stocks at any one time. It is mostly a long fund. But they gained during the COVID crash by putting on a credit -ased hedge. Almost perfect market timing. The history of Pershing Square Holdings has been a bit erratic but since we invested it has been very good. The fund is still trading a lot below net asset value. Pershing Square Tontine Holdings has been in the news recently following its deal to buy 10% of Universal Music. I'm still not clear what will be the pay-off for PSH.L holders from this deal. Both PSTH and PSH fell on the news.

Cadence Capital (CDM.AX). Share of net worth: 3.80%. IRR: 10.2%. This is a long-biased long-short fund that mostly invests in Australian stocks. I invested in this fund when it had been performing well. Then, soon enough, it started to perform badly. Since the COVID crash it has done well. They also invested in a private investment in DeepGreen Minerals, which will be taken public by a SPAC for a huge gain on Cadence's investment price. I am thinking to trim my exposure to this fund once the price has built in the value of the DeepGreen Investment. There is no reason to hold both this and the Cadence Opportunities Fund, and this is also the worst performing of the hedge funds that I have held for at least a few years.

Cadence Opportunities Fund. Share of net worth: 2.76%. IRR: 41.6%. This fund was launched recently by the managers of Cadence Capital. This fund has performed extremely well. It is a long-biased long-short fund that trades more actively than CDM.AX. It was supposed to be listed on the ASX but the IPO failed and it became a private company. At the time I didn't invest. That was a bad decision. When a second opportunity to invest came up, I took it. Our IRR so far shows that was a good move.

Platinum Capital (PMC.AX). Share of net worth: 2.67%. IRR: 13.0%. I first invested in Platinum Capital back in 2001. Over time, we also held various unlisted versions of the fund. I have gained by trading the fund depending on whether the share price was above or below NAV. The fund's best performance was during the dot.com crash when I first invested in it. Most of the time since then it has underperformed the market but has also had lower volatility. In the last year, value investing has come back into favor and the fund has again been outperforming the market.

APSEC. Share of net worth: 2.07%. IRR: -7.5%. This is an unlisted Australian stocks focused hedge fund. They did very well in the COVID crash:

So, I invested in them, and then they haven't done so well since then.

Contango Income Generator (CIE.AX). Share of net worth: 1.41%. IRR: -11.9%. This is a very new investment, so the IRR likely is pretty meaningless. This listed fund recently changed strategy to a global equity long short portfolio managed by WCM Investment Management. This is supposed to be their track record:

This was the result of an activist campaign by Wilson Asset Management. It is supposed to be hedged into the Australian Dollar.

In summary, a bit more than half of our hedge fund exposure is to the Australian Dollar but there is definitely quite a lot more international than Australian equity exposure.

Cancelled Moominmama's Income Protection Insurance

In 2019 I cancelled my own, but didn't know I could cancel Moominmama's. As she is 11 years younger than me, the premia were nowhere near as high yet but going up quickly. Like me, she has a year of sick and annual leave accumulated. It's hard to imagine her being so ill that she's off work for a year but not bad enough that she is still is planning on returning to work. Anyway, we wouldn't suffer any financial hardship if she stopped working. We would just be investing less and we already have more than AUD 5 million in net worth. Again, I still kept the death and disablement insurance, because the premium is not so much, though I'm not sure I should. I also learned more about disablement insurance in the process. In Australia, it turns out that it is a lump sum like life insurance, I didn't realise that.

May 2021 Report

This was a month of consolidation as I tidied up the SMSF and its repercussions and launched a review of all our investments.

The Australian Dollar rose from USD 0.7725 to USD 0.7738. It was another month of increases in world stock markets. The MSCI World Index rose 1.61%, the S&P 500 by 0.70%, and the ASX 200 rose 2.13%. All these are total returns including dividends. We gained 1.96% in Australian Dollar terms or 2.10% in US Dollar terms. The target portfolio is expected to have gained 1.58% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.80% 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):

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

• Gold had a very strong performance, gaining 8.7% in AUD terms or AUD 43k. Next was Tribeca Global Resources (TGF.AX) gaining AUD 19k, and third was PSS(AP), which gained AUD 7k.
  

What really didn't work:

• The worst performer was new investment Fortescue Metals (FMG.AX), which lost AUD 5k. It was followed by Pershing Square Holdings (PSH.L) and Hearts and Minds (HM1.AX) (-AUD 4k each).
  

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 and MSCI indices. We are doing a little worse than the median hedge fund levered 1.6 times. Interestingly, USD performance is now stronger over the last five years than AUD performance because the Australian Dollar has appreciated over that time.

We stuck close to our desired long-run asset allocation. Real assets is the asset class that is now furthest from its target allocation (3.0% of total assets too much). Private equity and futures are underweight. The former will solve itself over time as Aura make capital calls. We will fix the latter this month.

 

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold some Regal Funds (RF1.AX) shares getting back down to 60k shares.
• I invested in Contango Income Generator (CIE.AX).
• I sold Treasury Wine and invested in Fortescue. This was a very bad move.
• I invested in the Ruffer Investment Company (RICA.L).
• I switched funds from Platinum International Fund to Generation Global Fund.
• I made the first investment through Domacom.
• I bought some more shares in Pershing Square Holdings (PSH.L).
  
• I invested in another painting at Masterworks.
  
• I switched funds from the CREF Social Choice Fund to the TIAA Real Estate Fund.
  
• I opened a new calendar spread trade in soybeans. 
• We applied for shares in the WAM Strategic Value IPO.
  

More Investment Review Actions

 Following up on Parts 1 and 3 of the Investment Review I am making the following changes:

1. Switching from CFS Future Leaders to CFS Developing Companies

2. Closing investment in CFS Diversified Fund and switching one third to CFS Imputation Fund and 2/3 to Aspect Diversified Futures. 

The latter is a bet that trend-following will become more profitable again than it's been in recent years.