Currency Exposures

 I took a more granular look at currency exposures:

So, actually I still have less than 50% exposure to the Australian Dollar. This probably still exaggerates Australian Dollar exposure. I couldn't find any information on the Australian vs. international bond exposure in any of four Australian balanced funds we are invested in. So I ascribed all their bond exposure to Australian bonds. I am always frustrated by the low level of disclosure regarding investments by most Australian funds in comparison to American funds.

November 2020 Report

Stock markets rose strongly and the US Dollar fell this month. The Australian Dollar rose from USD 0.7036 to USD 0.7361. The MSCI World Index rose 12.36%, the S&P 500 by 10.95%, and the ASX 200 rose 10.32%. All these are total returns including dividends. We gained 3.83% in Australian Dollar terms or 8.63% in US Dollar terms. The target portfolio is expected to have gained 2.70% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.82% in US Dollar terms. So, we outperformed the latter two benchmarks. Here is a report on the performance of investments by asset class (currency neutral terms): 

Hedge funds added the most to performance and gold detracted the most.

 

Things that worked well this month:

• The following funds all gained more than AUD 20k: Tribeca Global Resources (TGF.AX), Hearts and Minds (HM1.AX), Platinum (PMC.AX), Pershing Square Holdings (PSH.L). Pershing and Tribeca both gained more than 18%. URF.AX (US residential real estate) gained 34%.
  

What really didn't work:

• Gold fell 5.9% or AUD 23k. Domacom (DCL.AX) drifted down, losing AUD 5.5k.
  

The investment performance statistics for the last five years are:

 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We have the desired asymmetric capture for all three indices now and positive alpha compared to all three of them. 

 

The next graph shows monthly performance relative to the MSCI and HFRI indices in US Dollar terms. Before COVID-19 we seemed to track the hedge fund index closely. Post-COVID-19 we are tracking the MSCI closely. We did take on more risk but it wasn't that big a change I thought. So, our investments must also be behaving differently.

 

We moved further towards our long-run asset allocation. Bonds are still the asset class that is furthest from their target allocation (8.4% of total assets too much) followed by real assets (real estate and art) (8.0% too little):

 

 

We are now over-allocated to hedge funds, so will look to trim some positions over time. On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I applied for AUD 100k of shares in the Cadence Opportunities Fund.
• The first capital call for the Aura VFII fund was made for AUD 62.5k.
  
• General Financial called 760 of our GNFSL baby bonds. We still have 240.
• I made a trade in E-Mini S&P call options around the US election. Got out for a small profit, but should have held much longer.
• I bought another 1,000 IAU gold ETF shares. Still not at 10% of gross assets in gold!
• I sold 5,000 Hearts and Minds (HM1.AX) shares, taking our position down to 40,000. This was because the stock was trading at a large premium to NTA.
  
• I bought AUD 25k by selling US Dollars. We are now at roughly 50/50 in terms of Australian Dollar linked and foreign currency linked investments and so will probably not buy more Australian Dollars for a while.
• I borrowed AUD 100k from Interactive Brokers and AUD 30k from CommSec to fund the new investments.
  

New Investment or Trade? Treasury Wine Estates

 

Today, I bought 5,000 shares of Treasury Wine @ AUD 8.42 a share. The stock has traded as high as AUD 20.20 in the last three years. The price has fallen since China put a huge tariff on Australian wine. The company's announcement seemed positive to me. This stock was also recommended at the recent Sohn Investment Conference by Jun Bei Liu of Tribeca Investment Partners. I don't think she was betting on such a high tariff.

Asset Allocation of Family Offices

 Here is the average asset allocation of family offices a couple of years ago according to UBS:

It's odd that they count commodities separately from alternatives. Perhaps it was used in a study about commodity investing. Here is our current allocation that was partly inspired by university endowments:

It's quite close, though we have more in commodities (=gold) and less in cash. Alternatives here includes private equity, real estate, hedge funds, futures, and art. As usual, the value of our house is not included.

Two New Investments

The second Aura Venture Fund finally closed this month and the first capital call was made for 25% of the investment. One of the things I like about these venture funds is that they gradually trickle money into the market. The others are that they have negative tax (a 10% tax offset on investments and no tax on gains or income) and the first fund has so far performed well. As I am committed to invest AUD 250k, this first payment was AUD 62.5k.

The second investment is the Cadence Opportunities Fund, which is an active trading equity hedge fund structured as a private company. When this fund was first floated and failed to IPO (instead it became an unlisted hedge fund), the main Cadence Fund (CAM.AX) was performing badly and so I decided not to invest. That was a mistake. The fund has gained more than 100% since launching. Now they have a rights issue and the opportunity for outside investors to obtain shares that aren't subscribed to by existing investors - the "shortfall". I put in a bid for AUD 100k in Moominmama's name.

October 2020 Report

Stock markets fell and the US Dollar rose this month. The Australian Dollar fell from USD 0.7156 to 0.7036. The MSCI World Index fell 2.41% and the S&P 500 by 2.66%, but the ASX 200 rose 1.94%. All these are total returns including dividends. We gained 2.35% in Australian Dollar terms and 0.63% in US Dollar terms. The target portfolio gained 0.22% in Australian Dollar terms and the HFRI hedge fund index is expected to lose 0.22% in US Dollar terms. So, we outperformed all benchmarks. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and gold detracted the most.

 

Things that worked well this month:

• Regal Funds was the top performer, gaining AUD 20.8k. Hearts and Minds gained AUD 14.4k.
  

What really didn't work:

• As well as gold (down AUD 1.8k), London listed stocks 3i (2.6k) and Pershing Square Holdings (1.9k) were the worst performers.
  

The investment performance statistics for the last five years are:

 

The first two rows are unadjusted numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We have the desired asymmetric capture for all three indices now and positive alpha compared to all three of them.

 

We moved further towards our long-run asset allocation. Bonds are still the asset class that is furthest from their target allocation (11% of total assets too much) followed by real assets (8% too little):

 

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

• I invested USD 20k in two new paintings at Masterworks. I now have USD 40k invested.
  
• I bought 278k Domacom shares (DCL.AX).
  
• I bought 25,000 Bluesky Alternatives shares (WMA.AX). 
• I borrowed AUD 100k from IB and used it to reduce our CommSec margin loan and increase our offset account balance.