Sirius Resources: Unmarketable Parcels

Sirius Resources (SIR.AX) is going to automatically sell out all shareholders with less than $A500 worth of shares free of brokerage and send the proceeds to the shareholders. They have 11,000 such shareholders including me. You can opt out by sending in a form. My shares are stuck in a Computershare registry account. When they were delisted from the ASX they were removed from my CommSec account. The fee to sell the shares through ETrade using a "Visitor Trade" is $49.50. But this is more than the shares are worth. Fee to send a new holding statement in order to transfer the shares to CommSec is $33.30 which is also more than they are worth. So I haven't sold them.

Monthly performance figures for December and annual figures for 2009 are now in for the HFRX monthly indices:



The Global Hedge Fund Index rose 0.55% for December and 13.40% for 2009. The best performing index for the year was the Russia Index while, not surprisingly Short Bias did worst. As I've been noting throughout the year, Convertible Arbitrage was the best performing of the traditional hedge fund strategies.

The Cost of Success

Not long after I commented that the TFS Market Neutral Fund was at an all time high the fund has decided to institute a "hard close". The close is going into effect on 22nd January.

A soft close is where a fund only accepts new investments from existing investors. The Colonial First State Developing Companies and Future Leaders Funds (both small cap Aussie stocks) are soft-closed funds. Under a hard close the fund does not accept new investments from existing investors either. In this case dividend reinvestment and some other exceptions are allowed.

The reason funds close to new investment is that the managers decide that increasing the size of the fund further will have negative effects on performance. Funds with sustainable good performances often end up closing to new investment. It is an indicator that the managers care about performance. This is much more common in the hedge fund world than in the mutual fund world. It's usually small cap or other specialised funds that are likely to close due to limited investment capacity.

It's a pity though that I won't be able to put more money into this fund in future.

Annual Report 2009: Part IV

Following a breakdown of the sources of growth in net worth, we look at changes in asset allocation over the year:



This first chart tracks gross assets. Net worth is less because of borrowing both by fund managers and ourselves. The growth in the various categories of stocks is pretty clear though. Looking at percentage share chart:



we see that the percentage allocated to Australian large (41.6 to 48.7%) and small cap (8.6% to 10.1%) stocks has clearly increased. Hedge funds now constitute a smaller share than at the market bottom (from 17.7% to 11.9%), but their share is about unchanged from the beginning of the year. The shares of other asset classes have mostly declined a little over the year. At some point we will need to cut the allocation to Australian stocks but I'm not ready yet.

HFRX Daily Hedge Fund Index Performance for 2009

The Global Hedge Fund Index rose 0.55% in December and 13.40% for 2009. Performance over the last 3 or 4 years is negative. The MSCI All Country Gross World Index was up 35.41% this year, down 4.05% annually over the last three years and up 1.79% annually over the last 4 years. So its long run rate of return was higher but so was its volatility.

Signature Debit?

It's weird that "signature debit" dominates the US debit card market - at least according to the New York Times. I don't think there is such a thing here and I can't remember ever doing anything other than keying in a pin number in the US either in recent years... (I banked with HSBC, maybe that explains it). Here, PIN credit cards are increasingly common as are debit and credit cards with chips in them. Credit cards do cost merchants more in Australia than debit cards. From the article it seems that signature debit costs the merchant almost as much as a credit transaction in the US while PIN debit is cheaper. The NYT article has this interesting graphic of trends in US payment vehicles:



Britain has already decided to phase out personal checks by 2018. When will banknotes and coins eventually go too?

Annual Report 2009: Part III

This chart shows that the rebound from the lows in early 2009 in our net worth is due to a combination of new savings and investment gains. This is true for both retirement and non-retirement accounts. Adding the "profit" component and the "savings" component for each class of account should give the current total value. With regained the bulk of our profits in retirement accounts but still have net losses in non-retirement accounts, which were managed much more riskily. That is likely to be different in the future.

Annual Report 2009: Part II

Net worth rebounded very substantially from the beginning of the year and the low early in the year:



Medium term balance is the net of all non-retirement accounts and assets and superannuation is all retirement accounts (both US and Australian). The moves in US Dollars are larger percentwise due to the move in the Australian Dollar from a low of 63-64 US cents in January-February to 89-90 cents at the end of the year. You can see this also in this scary chart in USD terms:



And slightly less scary chart in AUD terms:



2009 was in many ways a lot like 2003 for us financially. Hopefully, the next few years will continue in the mode of 2004-2007 :)

Moxy Vote

Moxy Vote is a new website (got started in November) which aims to link individual investors and advocates in order to get more individual investors to participate in corporate democracy. Most small shareholders don't bother to vote in corporate elections because a lot of effort is needed to understand the issues and most resolutions pass overwhelming in the direction recommended by the board of management. There are, though, occasionally mergers and the like which get voted opposite to board recommendations.

The idea of Moxy Vote is to change this by enabling investors to align their investment accounts alongside advocates that have informed opinions on the proxy ballots. The retail investors will then have their shares automatically voted in parallel to the advocates' shares. The site will cater to investors who are concerned about social causes (such as animal rights, human rights, environmental concerns, etc) as well as those that are pro-shareholder and are concerned about such things are executive compensation, strategic business decisions, etc.  Moxy Vote will just be a neutral platform that retail investors can use to get involved in any way they see fit.

It still seems to be very early days for this site as some of the advocates have not posted opinions on any of the upcoming votes. It is an interesting idea though and I'll be interested to see if it succeeds.

Annual Report 2009: Part I

The first part of my 2009 annual report focuses on rate of return relative to benchmarks. Here are the annualized rates of return:



As the Australian Dollar rose against the US Dollar rates of return in Australian Dollars are much lower than in US dollars. Our rate of return in 2010 was almost double that of the MSCI All Country Gross World Index. The rate of return was also better over ten years and 3 years. It was better than the S&P 500 over all but the 2 year time frame. Performance was stronger in the early part of the year with outperformance of up to 35% relative to the index in periods since then but little outperformance in recent months:



After disastrous returns in September, October, and November 2008, only April, May, and November this year saw returns with negative residuals based on a regression of my returns against the MSCI index:



As you can see, over the last 3-4 years alpha has been about zero and beta greater than one (my returns are more volatile than the market). However, using a structural time series model for the 1996-2009 period, I estimate alpha to be as high as 6.5% and beta at 1.22. Despite, my mistakes over the last few years the portfolio is still doing better relative to the market than it did in the 1990s. There is plenty more stuff I could post but I think that is enough to get the basic message across.

December 2009 Monthly Report

There'll be an annual report coming up soon with lots of charts, but for now, let's look at December. As usual everything is in US Dollars unless otherwise stated. December again saw moderate gains in world stock markets while the US Dollar strengthened for a change. The MSCI World Index gained 2.10%. The Australian Dollar fell from USD 0.9157 to USD 0.8977. We gained 2.38% in USD terms (AUD: 4.43%; Currency neutral: 4.08%). Our retirement accounts hit a new high at AUD 250,578 (USD 224,944). The previous high was in May 2008. The gain is due to both a lot of contributions and the rebound in the financial markets since February this year. Other investments reaching new highs in terms of profits we have made are: TFS Market Neutral Fund, Unisuper, CFS Diversified Fund, Platinum Capital, Generation Global Sustainability Fund, and PSS(AP) Super Fund (Snork Maiden's retirement fund).

Our spending was the second lowest since we moved to Australia at AUD 3,486 (USD 3,130):



Retirement contributions were higher than normal due to receiving the government's co-contribution this month and retirement accounts gained twice as much as non-retirement accounts.

Net worth reached USD 418k (AUD 466k) an increase of $15k. Asset allocation changed relatively little on last month with a move away from our target due to gains in Australian large cap stocks, which constitute more than half the portfolio:



Other stocks also performed well. The following is estimated performances for this month (net of forex movements) by asset class:



Preliminary numbers for commodities show a 5% fall in December. Estimated alpha against the MSCI index was 6.6% and beta 1.22.

Update on "Emergency Fund"

As I've written before we don't have an "emergency fund" as such, but we do have plenty of savings outside of superannuation (i.e. retirement accounts). Today the total is around $A215k. At current rates of spending and an 8.5% investment return (10% return - 15% tax) we could survive 4 years without working. By cutting spending down to $A4,000 a month (i.e. double our rent of $A1,998) another year is possible. But if we hit a period like the GFC we'd last much less time. So 3-5 years is probably a good estimate. With just one of us working in a good job or both of us on minimum wage jobs we can live indefinitely.

Florida House Prices

Median house prices in Cape Coral-Fort Myers, Florida have fallen to USD 92k. Many metro areas across the state have medians around USD 150k or less. Even assuming that many of these locations will be under the sea in a century or two (most of Cape Coral is less than 2 metres above sea level) it's not bad for a century or so lease :)

Meanwhile in Australia, house prices continue to rise. Single family homes in Canberra have now reached a median of AUD 535k (USD 480k). Sydney is at AUD 550k and Melbourne 486k. The median apartment in Canberra is AUD 390k (Sydney 417k, Melbourne 402k).

Moominmama Report December 2009

The US Dollar rose this month depressing returns in USD terms for globally diversified portfolios. As a result Moominmama lost 0.95% this month. The MSCI World Index managed a 2.10% gain somehow though. Moominmama did gain in stocks across the board and especially in non-US stocks. Commodities did poorly:



For the year Moominmama saw a 25.06% gain against a 35.41% gain for the MSCI.

Portfolio Growth for the Decade

At the end of 1999 my net worth was $A141k or $US87k. Today our net worth is around $US415k or $A470k. Is that good or bad? The growth rate is 12.8% per year in AUD terms or 16.9% in USD terms. Our investment rate of return was just 2.7% p.a. in USD terms and 0.1% in AUD terms. The MSCI World Index gained 1.0% p.a. So we beat the index over ten years. My projection spreadsheet predicts around $A1.5 million by the end of the next decade (when I will be 55 years old and Snork Maiden 44). That's a 12.3% p.a growth rate. If investment returns are better this coming decade it looks like that that is possible. I'm not adjusting for inflation in any of these numbers.

Ibis

I just saw an Ibis walking around in the street. I don't remember ever seeing one of those in Canberra before.

Government Co-Contribution

On 8th December the Australian Government finally paid $A1,500 into my superannuation account as their "co-contribution" alongside the $A1,000 I invested last financial year. I'll do another one this year as long as my income is below the cut-off limit. Unless I get another job right away in April after this one ends it probably will be. That page, though, suggests that I need to add my employer super contributions into my income figure, which might bring me near to the limit.

TFSMX at All Time High

At least one of my investments is at an all time high (when you include reinvested dividends). I have gained 27.6% since first investing in 2006. Year to date in 2009 the gain is 17.0%. All the previous profits and a little more were erased at the bottom in the GFC in November 2008 but the previous peak came in June 2008. The Sharpe ratio since inception is 0.67. By comparison the HFRI hedge fund index has a Sharpe ratio of 0.57 over the same period (and a lower rate of return). TFSMX has a beta to that index of 1.05 (R square is only 0.29 so its not a very good hedge fund proxy).

Fees for the fund are high by non-hedge fund standards and this stops some people from investing. But fees per se are irrelevant in my opinion and what really matters is performance after fees. TFS's managers have certainly earned their fees so far.

2009 Travel

Somewhat unusually I stayed in my home country the whole year (but it is almost a whole continent :)), but I did get to take these trips out of town:

1. Cairns, Queensland (for a conference) but I took a daytrip to Kuranda and back by cable car and train through the rainforests and past the Barron Falls waterfall which was very spectacular at that time of year.

2. Sydney, showing my parents-in-law around. All the usual suspect locations :) Yeah, I also gave a presentation at a pseudo interview.

3. Port Douglas, Queensland. Second trip to Cairns airport. This time with my wife and parents-in-law. My first snorkeling, first sighting of cassowaries in the wild and lots of rainforest and beaches.

4. Brisbane, Queensland. Job interview.

5. Darwin, NT and Kakadu National Park. A conference followed by a trip to Kakadu - aboriginal art, saltwater crocodiles, termite mounds and stuff like that.

6. South Coast of New South Wales. Beach walking, echidna sighting, driving through Deua National Park and Araluen Valley...

Before this year I hadn't been north of Brisbane or west of Melbourne on land in Australia (of course I had flown over much of it in a plane). Also during 2009 we thought about going to Europe (my continent of birth by the way) but gave up. Hopefully, we'll get to Europe in 2010. I was last there in 2005. I will also be visiting South Australia for the first time. That leaves only Western Australia.

Australian "Hedge Fund" Investment Opportunities

I have a couple of prospectuses here for investments in Australian "hedge funds" but I think I will skip both:

Platinum Capital Share Purchase Plan: Existing shareholders can buy up to $A15,000 of shares in this listed hedge fund. The shares will be priced at a 5% discount to the average price over some period in February. However, the shares have been trading recently at a fairly high premium to net asset value (including an estimate of franking credits) of around 13%. The premium has been higher in the past - up to 30%. In October 2008 there was a negative premium of -24%. Over the last few years the premium has averaged 6%. Of course we have no way to know what the stock price will be in February. There is a risk that the premium could be even higher. So I prefer to skip this offer.

Everest Credit Opportunities Fund: This is a new offering from Everest Financial to invest in a fund of funds of credit strategies hedge funds. There is no closing date to the offer. Minimum investment is $A10k. As I have been reporting some credit strategies, and in particular convertible arbitrage, have been performing extremely well this year. This fund smacks of chasing high performers. The prospectus says that they expect these credit strategies to continue to perform well in coming years but I doubt the performance will be as good as this year. The initial fund allocation is as follows:



The long-term returns on these funds are fine. Management Expense Ratio at the fund of funds level is around 2.5% with no performance fees. So based on the long-term returns of the individual funds I think we could expect about an 8% return on the fund of funds. There is a 12 month initial lockup period after which funds can be redeemed quarterly with 120 days notice. Given these facts, the relatively large initial investment, and my existing exposure to these kind of strategies via the Everest Alternative Investment Trust, I think I will give this one a miss too.

Credit Suisse/Tremont Hedge Fund Index Performance November 2009

Credit Suisse/Tremont are reporting preliminary results that are a little stronger than both HFRI and HFRX. The overall index is estimated at 2.29% with strong performances from managed futures and global macro:



Convertible arbitrage did OK in these data.

HFRI Preliminary Performance November 2009

The results are more positive than the HFRX returns. Even convertible arbitrage showed a positive return in this larger sample.

Update on Aletheia

An update on the performance of my Mom's investment in an Aletheia fund. I have monthly data now from June 2008 to November 2009. Not a lot of datapoints but this provides a stress test during the GFC. As this fund is invested in US stocks I use the S&P 500 total return index as the market portfolio. Beta is 1.26 and alpha is -0.06% annually over this period. R-Squared is 0.79. In other words this is pretty close to a levered version of the index. Before we invested the fund had a highly positive alpha. It's reassuring to find that at least it doesn't now have a negative alpha!

I'm thinking of doing a longer term analysis. The fund releases quarterly performance data but this might not reflect the level of fees that we are actually paying while this monthly data does, so I'm not sure how useful that would be.

Moominvalley November 2009 Report

As usual everything is in US Dollars unless otherwise stated. After stock market declines in October, November again saw gains in world stock markets while exchange rates were fairly stable. The Australian Dollar barely moved against the USD and the MSCI World Index gained 4.16%. We gained 2.21% in USD terms (AUD: 2.25%; Currency neutral: 2.23%).

Our spending was quite high at $5,147 ($A5,621):



Our rent is now $A1,998 per month. We spent quite a lot on travel to the Northern Territory - actual trip was in October - and the South Coast of NSW - actual trip was in December. In total, $A1,250. Net worth reached $403k ($A440k) an increase of $12k. Asset allocation changed little on last month with a slight move towards our target and a reduction in leverage. Foreign stocks did very well while Australian stocks had modest gains. The following is estimated performances for this month (net of forex movements) by asset class:



Private equity did well due to a strong move in IPE.AX. Estimated alpha fell due to the below market returns though I can't be bothered to post exact numbers :)

Blog/Career Update

Long time readers will notice that I'm posting much less on this blog than in the past. That's because I am focusing on my academic economics career and my professional blog as I forecast. And I'm doing very little on the investment front. I notice I haven't even done any career updates since September. Things have gone a bit better on the career front recently with a couple of requests by journals to revise and resubmit papers (rather than outright rejects). But my most recent response from a journal was again a reject. Otherwise, I've been working on my funded research project, doing some presentations and developing my grant applications. On one application I now have a team of three people including me applying. There is a job available in my department with a January deadline. I've received encouragement to apply for it and so will do. I've also been asked to apply for a job at a Sydney university, though it's not the chairman asking so I may have one supporter but that might not be enough. We don't really want to move to Sydney but can't hurt to apply and see how it goes.

In other news, we've been on a couple of trips - to Darwin/Kakadu and just last week to the NSW South Coast. Both were good and we spotted a bunch of wildlife etc. Maybe Snork Maiden will do some blogposts on this some time? On both trips we stayed in self-catering style cabins which were very nice. One was much more high end than the other but both were good experiences.

I hope to keep this blog running with at least monthly net worth/spending reports, info on hedge funds, and some other occasional posts.

HFRX Hedge Fund Index Performance: November 2009

The HFRX global hedge fund index gained 1.66% in November. Most styles gained this month but there was a tendency for styles that have lagged so far this year to do well (e.g. Macro, Systematic Diversified) and for this year's strong performers to do poorly (i.e. Convertible Arbitrage). I guess that shows the value of diversification :)

Moominmama Performance November 2009

Another good month in which the MSCI World Index rose by 4.16%. Somewhat surprising given the negativity that seemed to be in the news for much of the month. Moominmama saw a more modest gain of 1.44%. US and European equities did best. Despite all the talk of the falling USD, Sterling actually fell against the USD this month. The Euro gained a little but we don't have Euro cash and only 15% of assets overall in Euro denominated investments.

Self-Service Checkout

Our local Woolworth's store has just introduced self-service checkout machines. I've used these before at Big-W (pictured) and in the US. After today's experience though it seemed to me that it would be so easy to rip the store of and steal stuff when using these machines:

1. The machine asked me how many mangoes I had. If I put one instead of the four I actually had, how would anyone know?

2. If I told the machine I had some cheap vegetable in place of the one I actually had how would anyone know?

Or are they planning on random audits of customers leaving the store? I didn't see any evidence of that.

Also I could just leave some stuff in the trolley/cart and not check it out as there doesn't seem to be an electronic security system in place. Or would I get caught if I tried to pull these tricks off?

My "Hedge Fund" Investments

I got a question on a recent post about our hedge fund investments. I count any fund that uses hedging instead of straight asset class investing as a hedge fund. Some of our investments in this class are traditionally classified as hedge funds, some as mutual funds, and some as closed end funds. Here is a list of what is included in this category in order of size of investment:

Platinum Capital: This fund is a global long-short (about 70% long, 30% short) stock fund that also uses currency hedging and is listed on the Australian Stock Exchange (ASX). Information here. We are also invested in this strategy through Snork Maiden's account with Colonial First State. 4.95% of net assets.


EAIT: This is an unlisted fund of hedge funds. You can get information on it here. I originally invested when it was listed on the ASX. The fund is invested in major US based hedge funds. It uses some leverage. 4.29% of net assets.

TFS Market Neutral Fund: This is a US mutual fund that uses a quantitative long-short investing style in US stocks. It is somewhat net long and net market exposure doesn't change much over time.
Info here. 2.91% of net assets.

Hussman Strategic Growth: This is another US mutual fund that is long US equities with a variable options overlay that alters the fund stance from market neutral to fully long. For info see here. 1.78% of net assets.


Aurora Sandringham Dividend Income Trust: This fund uses a dividend capture strategy on large cap Australian stocks. It holds shares for long enough to capture dividends and franking credits in a tax effective manner (there is a minimum holding period under Australian tax law in order to be able to claim the tax credit). It hedges much of it's market exposure. Info. 1.78% of net assets.

Acadian Global Long Short Fund: We invest in this through Snork Maiden's account with Colonial First State. It's a 130/30 fund. 0.74% of net assets.

PSS(AP): 0.58% of net assets are in hedge funds that the PSS(AP) superanuation fund invests in.

We are also invested in Man-AHL but I count that under "commodities" rather than "hedge funds".

Overall we have 17% of net assets and 12% of gross assets invested in hedge funds. I'm happy with the gross level rising back to 14%. I wouldn't want to invest more than 5% in any one fund, so Platinum Capital is capped pretty much at the current level. I'd be happy to see our TFSMX investment grow in size and our allocation via PSS(AP) will inevitably grow. I'll be happy to allocate more to Aurora too. Down the road we might invest in a new fund, but I don't have any compelling choices in front of me right now.

Initial Hedge Fund Returns for October 2009

HFRX shows global hedge funds were more or less flat in October. Convertible arbitrage continued its strong outperformance this year.

Moominvalley October 2009 Report

This report is based on the available data as a couple of funds as usual won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated. There are some numbers I still can't reconcile and I can't see where my mistake is but here is the report anyway.

After a strong rally for stocks globally for the last 6 months, October saw losses in World equity indices. The MSCI World Index lost 1.53% in USD terms and the SPX lost 1.98%. But the Australian Dollar continued to appreciate, this time gaining by about 3 US cents. This meant that we gained 0.78% in USD terms but lost 2.93% in AUD terms and 2.09% in currency neutral terms. So we beat the market by more than 2 percentage points.

Our spending was pretty normal at $3,896 ($A4,252):



Almost half our monthly spending is going to rent ($A1,955 and $A1,988 from this month). Net worth reached $392k ($A428k), which is a decline in AUD terms. Asset allocation moved slightly towards our target with the biggest gain in Australian small cap stocks (now above target):



The following is estimated performances for this month (net of forex movements) by asset class:



Only Australian small caps had a positive performance. The above market returns this month boosted estimated alpha and reduced estimated beta. Alpha measured against the USD MSCI was 7.6% with a beta of 1.24 currently. Beta remains very high and will have to come down at some point. Performance in AUD terms is similar.

After record falls in net worth we are now seeing a record gain for the last 12 months:



The gap between earning and spending computed in this way is the gain in net worth. In terms of investment returns, total return is back to the levels of early 2005:



Accumulation index is Australian lingo for "total return index" in American. Net worth is back at mid 2006 (or mid 2008) levels:



Retirement accounts are near the all time highs, non-retirement accounts (medium term balance) have not rebounded as well. That is where the trading losses were concentrated.

I think that's enough charts for this time :)

Leverage Can Be Used to Reduce Risk

A point I've made in the past is made again in an article on AllAboutAlpha.

What Gets the Most Comments in the New York Times?

An article on what waiters should and mostly shouldn't do. I find the article and comments pretty amusing. The only things that annoy me are waiters grabbing my plate before I've finished or barely finished eating and keeping coming back and asking questions about how everything is and whether there is any more they can do for us. At cheaper restaurants in the US sometimes it gets very annoying as you keep getting interrupted by the waiter. Of course they are trying to sell more stuff to get a bigger tip and trying to turn over more customers as the individual bills are low. I found as the price went up a bit this was less of a problem. The constant asking of questions isn't much of a problem in Australia where tips are usually a question of rounding the bill off if anything (at least traditionally and in my experience (certainly not an expected percentage).

Moominmama Performance October 2009

Despite the MSCI World Index losing 1.53% this month, Moominmama gained 1.04%. Part of the gain is due to the decline in the USD (though the MSCI World Index is also in USD) and her US and European equities underperformed the index. Despite the introduction of a tax on foreign capital in Brazil her Brazilian fund did best of all. Over in Moominvalley, though not all the final prices are in yet, it looks like we gained too in USD terms.

Income of American Retirees

Interesting discussion in the comments on a Krugman post on retirement income based around this pie chart of income sources of Americans of 65 and older in the 75% to 50% quartile (second from top):



The chart shows that only 9% of this group's income comes from assets - i.e. 401k's, taxable accounts, rental housing etc. But some major caveats are needed in order to understand the results:

1. The asset income does not include capital gains or drawdowns of principal. In reality this group is far more reliant than this on assets they own for their income.

2. The data is for 2008 when interest rates were hitting record lows and dividends were being cut. Income in previous years would have been higher.

3. Defined benefit pensions rely on underlying investments in capital assets, usually the retirees are not exposed to the fluctuations in the underlying investments unless the plan ends up collapsing due to underfunding...

By the way, here is the income sources for the top quartile:



They do get a greater share of their income from assets but they are also working more or more of them are working.

Global Housing Market Trends of the last 40 Years

A nice chart from McKinsey of real house prices over the last forty years in a wide range of countries:



The UK saw the largest rise in prices. The US housing bubble was really quite moderate by comparison. By contrast, house prices just don't go up in Germany ever (but they seem high).

First Look: Credit Suisse Tremont Hedge Fund Index for September 2009

Preliminary figures from Credit Suisse Tremont show a 2.62% return for hedge funds for September. Macro returns are pretty strong and not bad for the year, in contrast to HFRX and to a lesser degree HFRI. There are other differences too. Credit Suisse Tremont shows nice returns for Distressed Securities for the year, for example.

HFRI Reports a 3.02% Hedge Fund Gain in September

HFRI, which covers a larger sample of hedge funds than HFRX, has come in with a larger gain for September. And unlike HFRX, with the exception of "short bias", every style of fund gained including Macro. HFRX's sample is designed to be representative but only includes funds that report daily NAVs.

Moominmama Performance September 2009

Moominmama's portfolio gained 1.98% this month compared to the 4.62% gain in the MSCI World Index and a 3.73% gain in the S&P 500. That's not surprising as beta is only 0.47 - only one quarter of the portfolio is in unhedged stocks. Brazilian stocks were the strongest performer this month. The portfolio value is 12% below the all time high recorded in May 2008. The rate of return over one year is now 1.65%. Moom is also showing a positive one year return of 1.76% while the MSCI remains down 4.77% and the SPX down 6.91% over the same period. Moom's and Moominmama's portfolios are very different from each other. Moom has 60% or so in Australian stocks while Moominmama has no intentional Australian investments. So this is likely to just be a coincidence.

September 2009 Report

This report is based on the available data as a couple of funds as usual won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated.

It was yet another good month month. The MSCI World Index gained 4.62% in USD terms and the SPX gained 3.73%. The Australian Dollar continued to appreciate, this time gaining by 4 US cents. We gained 9.88% in USD terms (4.91% in AUD terms and 6.92% in currency neutral terms). I'm feeling a little bit superstitious about saying too much about how great things are going. But it is a relief that we're bouncing back towards our former position faster than my most optimistic expectations. Some more good news today, was that UniSuper have refunded the retirement contributions that they mysteriously deleted.

Our spending was quite low when some refundable business expenses are deducted: $3,167 ($A3,588):



Non-investment income was high because we each received 3 biweekly salary payments and received Moom's tax refund. All other categories of net worth accumulation were strong. Net worth reached $380k ($A431k). Asset allocation moved away from our target but there were no dramatic changes this month:



Rather than selling stocks I will be adding to investments outside the large cap Australian stock category as much as possible. The following is estimated performances for this month (net of forex movements) by asset class:



Sorry for the missing labels - they are in the same order as the allocation above... Australian stocks again performed strongly and hedge funds are estimated to have gained reasonably well too. The above market returns this month boosted estimated alpha and beta. Alpha measured against the USD MSCI was 6.5% with a beta of 1.27 currently. Beta remains very high and will have to come down at some point. Performance in AUD terms is similar.

Moom's Tax Assessment

I didn't get as much of a tax refund as I was expecting for two reasons:

1. You can only claim the low income tax offset to the extent that tax is payable on your income in the first place. The offset can be as much as $A1,200 but if tax payable is, say, $A573.75 as in my case then that is as much as you can claim.

2. Foreign tax credits can only be claimed if after the low income tax offset you have some tax liability. Mine was zero and so I couldn't claim $A251 in foreign tax paid.

But I could claim $A1,606.68 in franking credits on Australian dividends and I'd already paid $A3,706 in tax and so my refund was $A5,312.68.

HFRX up 2.22% for September 2009

In general, those strategies that have been doing well this year, like Convertible Arbitrage, continued to do well and those that haven't, like Macro, continued to underperform. There were some exceptions such as Distressed Securities which performed OK this month for a change.

Tax Refund

I got my tax refund credited to my account (amazingly fast) but it's about $A800 less than I was expecting. I'll have to wait for the letter to find out why.

Henry Seems to "Get It"

I recently commented on leaks from the Australian government's Henry tax review that seemed to be heading in the direction of just grabbing revenue wherever possible from Australians while reducing taxes on foreigners on the basis that they could invest somewhere else instead. But this speech by Ken Henry to an economics conference is much more subtle and nuanced. He does seem to not only a command of the issues in this speech but sympathy for some of the more radical ideas. He leaves us in suspense about which way he and his team will jump in their advice to the government - tax savings more heavily (but uniformly) than now, or tax savings less (but again uniformly)? If I can read between the lines this seems to be favoring lighter but some taxation on capital?

Snork Maiden's Tax Assessment

Just got the tax assessment and the amount payable is less than half of what I expected: $A301.45. not payable till 23 November either and conveniently payable by BPay too.

I had the wrong tax free threshold (too low) and maybe other mistakes in computing the tax payable. I did have the correct taxable income and offsets. I calculated these things correctly on my own tax calculation.

Another Job Opportunity?

My chairman told me today that they'll finally be able to readvertize soon a position that might be relevant to me. The position has been frozen for about a year while a "reorganization" has been proceeding. Any potential opportunities are welcome news. Especially as both Snork Maiden and I would like to stay here in Canberra if possible.

Other news: We're planning a trip to the Northern Territory for a conference and some travel to national parks. We haven't decided whether to head to Kakadu, which is a world heritage area or whether to head south from Darwin to Litchfield and Katherine Gorge National Parks. Any recommendations?

In the annoying but weird department our car was crashed into in a shopping mall car park last week while we were shopping. The damage does not appear to be too bad - the window still goes up and down OK in the door which was damaged. It turns out that the person who ran into us was the wife of the Iranian ambassador.

More Leaks from the Henry Tax Review

Needless to say almost that I don't like any of these proposals personally except the pay as you drive road tax perhaps and I don't like the privacy implications of that.

Company Tax A lower rate might sound good, but for Australian taxpayers who receive "imputation credits" for corporation tax paid it doesn't change their inclusive tax burden and it increases the personal income tax they have to pay on dividends and reduces the franking credits that some people manage to use to offset other tax liabilities or like me even end up with a negative net tax burden.

Higher Resource Taxes Something I think makes sense nationally. but of course will reduce the value of shares in Australian resource companies...

Abolishing the Long-Term CGT Discount The discount makes sense for two reasons - it reduces the double taxation on reinvested profits - if companies pay out dividends we get the credits for the corporation tax but not if they reinvest profits; and second - with no discount we end up paying tax on purely inflationary gains in asset values.

Stamp Duties These are very inefficient transaction taxes. As a potential first time home buyer we would be exempted from the tax anyway.

Inheritance and Wealth Tax Of course, I am opposed to these on a personal basis though from the discussion in this article it's likely the exemptions would be set very high (an inheritance tax obviously would be worse news to me than an estate tax). I think they are unfair taxes as again they are double taxation. I would support a final capital gains tax being levied on estates though to cover asset value increases that weren't previously taxed. At the moment, Australians are meant to pay CGT when selling assets that they inherited using the original cost basis of their benefactor. OTOH estate taxes are probably pretty economically efficient as taxes go. They don't interfere with incentives to work or invest (at least in the short-term) and in the US at least encourage lots of donations to the public good. And those who bear the taxes are going to inherit some of the money and thus be relatively wealthy and have a low marginal utility of wealth.

Payroll Taxes I don't have a strong opinion here. Unemployment doesn't seem to be a big issue here in Australia so the taxes don't seem to be having a detrimental impact on employment.

Raising the Superannuation Access Age From 60 to 67 is a huge jump. The previous government allowed people to get their money out of super tax free from age 60. Rather than reversing that decision this government is heading to increasing the age dramatically to reduce the reduction in taxes that resulted. I think that is a bad move.

Pay as You Drive We don't drive much so I don't have a problem with this :)

In summary the goal seems to be to improve the playing field a bit for foreign investors and raise the tax burden incrementally on Australians. It is disappointing that they didn't take the opportunity to do something dramatic like a consumption tax. Of course that is unlikely politically under a supposedly left-wing government. The government of course is unlikely to take everything on board from this review. So we should expect fairly little tax reform. I'm more and more likely to vote Liberal at the next federal election (I voted Green with second preferences * to Labor at the last Federal election and Green with second preference to Liberal at the last Territory election). Of course it will make no difference to anything what any of us vote. Since time immemorial the ACT has been represented by Labor in the lower house and by one Liberal and one Labor senator in the upper house of parliament.

* Here in Australia we have preferential voting - you list candidates or parties in order of preference. If your first choice doesn't get in your vote is transferred to your second choice and so forth. Voting is also compulsory.

More Details on Moom's Taxes

I now submitted my tax return and as promised here are all the details. You can compare these numbers to last year's too. The main differences are that I earned a salary for four months this tax year and no salary last tax year (in Australia our tax year ends on 30th June). But this year my net capital gain for tax purposes was zero versus almost $10k last year (1 AUD = 0.80 USD on 30th June). And dividend income declined due to selling stocks and companies cutting dividends. Deductions were a bit bigger. Supplement deductions are foreign margin interest and derivative losses by the way. Australian dividend deductions are Australian margin interest and depreciation costs on my computer etc. So I actually ended up earning less for tax purposes than last year.

Adjusting income to actual income rather than taxable - the main change is due to the fact that you can't deduct capital losses against other income - I really lost a pile of money. I end up getting a net 4.5% of my loss back from the ATO (Australian Tax Office). This is due to ending up with surplus franking credits - credits for corporation tax paid by Australian companies - which you can then claim back as cash. $3,700 was withheld from my wages. I get all of that back too. So we're expecting a $6,000 refund.

As I've got a salary for at least 8 months this year I may even end up paying some tax this year :)

August 2009 Report

This report is based on the available data as a couple of funds as usual won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated.

It was another good month month. The MSCI World Index gained 3.62% in USD terms and the SPX gained 3.61%. The Australian Dollar again appreciated a little against the USD. We gained 7.90% in USD terms (6.76% in AUD terms and 7.02% in currency neutral terms). Our spending was normal. Returns in annualized terms over various periods:



We have weaker performance than the indices in the 12 months to 3 years time frame but better at longer and shorter time frames as I recently showed in a chart.

We spent $3,492 ($A4,145):



All other categories of net worth accumulation were strong. Net worth reached $336k ($A399k). It feels good to be above $A400k again now early in September. Asset allocation moved away from our target but there were no dramatic changes this month:



Australian stocks moved further above target while foreign stocks remain considerably below target. The target is a very long term target, I don't plan on selling Australian stocks soon, but I do plan to keep adding to foreign stocks as much as possible. The following is estimated performances for this month (net of forex movements) by asset class:



Private equity and Australian stocks continued to peform strongly. The above market returns this month boosted estimated alpha and beta. Alpha measured against the USD MSCI was 5.3% with a beta of 1.23 currently. Beta remains very high and will have to come down at some point. Performance in AUD terms is similar. Performance against the S&P 500 is ridiculously strong...

Moom's Australian Taxes 2008-9

I just did my tax return. It only took 2 1/4 hours because I prepared a spreadsheet last year when I did our first tax returns after returning to Australia. The numbers aren't final because my employer never sent me my "PAYG Payment Summary" (equivalent to U.S. W2) and so I requested that today. Anyway, it looks like I should pay negative tax of about $A2,500 (due to the low income offset and surplus franking credits). About $A3,700 was withheld from my salary, so I should get a refund of about $A6,200. My taxable income was around $A10,000. Of course I really lost about $A50,000 but capital losses have to be carried forward to be set against capital gains in future years. I'll do a detailed analysis and comparison to last year when I have the final salary information.

What I'm confused about now is how the government will know I contributed $A1,000 to superannuation and so pay me a $A1,500 co-contribution? There wasn't anything on the tax return to mention that. Do they just get the info from my fund manager and then check that against my tax return? I guess so.

Credit Suisse/Tremont Early Returns for August 2009

Are 1.68% with a very similar overall picture to HFRI. I'll post more detail with the final numbers.

Optimism Hits a Record High in Australia

It's probably hard for my American readers to imagine this is possible. I guess because we missed out on any kind of recession really (so far), just had a bit of a slowdown, when most of the rest of the world went into recession, has made Australians ultra-optimistic. We haven't had a recession for 19 years now...

HFRI August Numbers are in

About a week earlier than normal:
They confirm the general picture shown by HFRX but the overall index came in stronger as did many styles such as macro.

Initial Hedge Fund Performance for August 2009

First off the blocks HFRX reports a 1.25% gain for hedge funds in August. The distribution across "styles" is pretty similar to that in July: