Individual Investment Returns, August 2019

Following up on the monthly report for August, here are the returns of each individual investment or trade. As usual, I have aggregated all the individual bonds (23 of them) we have into one number. As discussed in the monthly report, gold and the Winton Global Alpha Fund did exceptionally well, some hedge funds (Tribeca and Platinum Capital, in particular) did badly, and diversified funds like CFS Conservative, CREF Social Choice, and PSS(AP) weathered the month well.  Real estate investments did OK. The CFS Developing Companies fund also bucked the trend for the month.

August 2019 Report

Stock markets fell in August but we did OK in Australian Dollar terms and not so bad in US Dollar terms. The Australian Dollar fell from USD 0.6879 to USD 0.6729. The MSCI World Index fell 2.33% and the S&P 500 1.58%. The ASX 200 fell 2.05%. All these are total returns including dividends. We gained 0.93% in Australian Dollar terms and lost 1.27% in US Dollar terms. The target portfolio is expected to have gained 1.82% in Australian Dollar terms and the HFRI hedge fund index is expected to have lost  0.70% in US Dollar terms. So, we had a relatively strongly performing month, beating all three stock indices but under-performing our target portfolio and the HFRI. Updating the monthly returns chart:

Here is a report on the performance of investments by asset class (futures includes managed futures and futures trading):

Gold, futures, bonds, and Australian small cap had positive returns while other asset classes lost money. The largest positive contribution to the rate of return came from gold and the greatest detractor was hedge funds. The returns reported here are in currency neutral terms.

Things that worked well this month:

• Gold gained 7.8%.
• The Winton Global Alpha Fund also did very well gaining 5.6%...
• I was impressed by the PSS(AP) balanced fund, which actually gained this month. But generally, diversified investments did well as bond performance outweighed the fall in stocks.

What really didn't work:

• Trading. Not including gold we lost 2.48%. Including gold it was a 2.18% gain for the month. Near the beginning of the month we had a big winning trade in Bitcoin, gaining USD 16k. We then gave it back in losing trades as the cryptocurrency chopped around. I have now reduced my position size in case this chop continues. The treasuries steepening trade also lost as the yield curve inverted more.
•  Tribeca Global Resources Fund (TGF.AX) did horribly in terms of its share price. It's trading at quite a large discount. Cadence Capital (CDM.AX) returned to its position of being my worst investment ever in dollar terms, down AUD 20.6k cumulatively (AUD 3.2k this month).

We moved a little more towards our new long-run asset allocation.* Gold and cash increased most and bonds decreased most:

On a regular basis, we also invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. Other moves this month:

• $25k of Scorpio Bulkers baby bonds matured slightly early, $25k of Hertz bonds were called, and $50k of Macquarie Bank bonds matured. I bought $50k of Energy Transfer bonds and $15k of Ford bonds. So, our direct bond holdings declined by $35k.
• We traded unsuccessfully, as discussed above.
• I opened a small position (10,000 shares) in URF, an Australian based REIT investing in US residential property, that was trading at a large discount to net asset value. 
• I increased our holding of Domacom (DCL.AX) shares to 100k. It's still a very small position – 0.2% of net worth.
• I bought 1,000 more shares of the IAU gold ETF. 
• I invested the inheritance of baby moomin. This reduced our cash and debt by the same amount as I was holding cash for this purpose but recording a loan from him in our accounts. Reported net worth does not include the net worth of our children, just my wife and I.

* Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds. We currently don't have any leveraged funds.

Understanding Wills and Estate Planning

As we don't yet have a will, I have been reading this book, which is a simple guide to this topic with plenty of examples. I now see that there is more to estate planning in Australia than I thought. There are no inheritance taxes in Australia, so I thought that "estate planning" wasn't a big deal here. But after reading the book I now see that you might want to design things to prevent various scenarios occurring, and yes there are some tax issues, and then there are all the issues of making sure your wishes are carried out.

For example, in the case of my mother, after she lost the ability to make decisions, we ended up being dictated to by the government about how we managed her money etc. We had to sell all her financial assets and reinvest them in an approved way. We had a power of attorney to act on her behalf, but crazily this became invalid when she most needed us to act on her behalf! This was because prior to 2017 apparently you couldn't have an enduring power of attorney in her country. So, it is important to set up an enduring power of attorney.

I aspire that my children will inherit in real terms at least as much as I inherited from my parents. Of course, we can't guarantee this as who knows what might happen to the economy etc. But we can try to prevent some adverse events happening. An example is if one of us dies and the other gets a new partner. Then they die and the partner inherits everything and decides to give none of the money in their will to our children.  Maybe because they have existing children and rewrite their will to include only them.... This kind of case is mentioned in the book but the solution isn't provided. On p58 it says that the survivor should see a lawyer before remarrying...

I am thinking the solution is to set up a testamentary trust on the death of the first spouse incorporating their share of the total assets. The beneficiaries would be the surviving spouse and the children. The surviving spouse will earn income from the trust during the remainder of their life after which the children will be the sole beneficiaries of the trust. So, clearly, we are going to need to discuss with a lawyer all of this.

Currently, if our nuclear family all died, it would be my mother-in-law who would inherit everything according to Australian law. I can't imagine she would handle that very well and given the large inheritance component from my parents, that hardly seems fair. So, we also need to have contingent inheritors to result in a more reasonable distribution of assets in that extreme case.

We also will need to think about who would be a guardian for our children if we both died. I can't really think of someone here in Australia that we would want to do this and who would agree to it as neither of us have relatives here. But it is something we are going to have to determine.

There are probably lots of things I still haven't considered but I think we are going to need to have rough ideas about all of these before meeting a lawyer. By the way, if anyone can recommend a lawyer that they have used, that would be great!

Individual Investment Performance, July 2019

In July, generally alternative investments and small cap stocks did well and gold and our trading did poorly. Some things were just bouncing back from previous poor performance like Tribeca Global Natural Resources (TGF.AX) or Domacom (DCL.AX).