May 2026 Report

International stock markets gained, but the Australian market lagged, presumably in response to the tax changes. The Australian Dollar was little changed moving from USD 0.7179 to USD 0.7185. Gold fell in USD terms. Here is the performance of our benchmarks (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 5.21%

S&P 500: 5.26%

HFRI Hedge Fund Index (forecast): 1.50%

Australian Dollar Benchmarks

ASX 200: 1.34%

Target Portfolio (forecast, depends on HFRI): 2.56%

Australian 60/40 benchmark: 2.92%

We underperformed all our benchmarks by a lot. In Australian Dollar terms we gained 0.44% and in US Dollar terms we gained 0.53%. This barely covers inflation. The SMSF also underperformed gaining 0.43% while Unisuper gained 2.26% and PSS(AP) 2.31%.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Gold, futures, and private equity lost money but all other asset classes gained. Hedge funds were the best performer and greatest contributor. 

Why did we underperform the target portfolio? The most important reason is that we had a -0.15% contribution from private equity while the target benchmark had a 1.84% contribution. If the target portfolio had lost 0.15% on private equity instead, it would have returned only 0.57% overall. As we will see below, 3i was a major detractor, and we just don't have consistent wins on our venture portfolio yet. This is the J-curve curse. If and when we do have consistent returns–returns are actually positive already– they'll report with a long time lag too.  

Things that worked well this month:

• Six investments gained AUD 10k or more: Tribeca Global Resources (TGF.AX, 44k), Unisuper (18k), PSS(AP) (14k), Pengana Private Equity (PE1.AX, 13k), Acadian Global Equity Long-Short (13k), and Regal Partners (RPL.AX, 10k). Our industry/public sector super funds were nice diversifiers this month.

What really didn't work:

• Three investments lost AUD 10k or more: L1 Global Long-Short (GLS.AX, 27k), 3i (III.L, 22k), gold (14k).

Our distance from our target allocation very slightly narrowed. Our actual allocation currently looks like this:

Almost 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity and credit, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly pension payments from both Unisuper and our SMSF totalling AUD 5,150 per month. I got a bit more active in the market, making the following investment and trade moves this month:

• We received a large value of distributions this month. AUD 20k from URF.AX, AUD 24k from Aura VF2, 3k from Aura VF1, and more than AUD 10k including the franking credit from WAM Capital. The first of these largely went to paying our SMSF's tax bill of AUD 16k after the annual accounts were finalized. The Aura payments were a welcome boost to our offset account, which is currently at just below AUD 300k:

• I made three investments (USD 2k each) in startups on Angellist. These were my first investments that were not with the Unpopular Ventures syndicate. Two of them are in the medical/health field.
• I sold 20k shares of Tribeca Global Resources (TGF.AX) around the recent price peak. This reduced our margin loan back towards the level I fixed at a constant interest rate.
• I sold 2k shares of the ASX 200 ETF, IOZ.AX. I think I was just getting bored of this! I used the money to:
• Buy 1,000 shares of ZIM again and 10k shares of Regal Partners (RPL.AX). ZIM has fallen since I sold and continued to fall since I rebought... There seems to be a lot of resistance in the government to approve the takeover by Hapag-Lloyd. On the other hand, businessman Haim Sakal has made a higher bid for the firm, though it doesn't seem to being taken very seriously. Regal just seems very cheap given the growth the firm is achieving. These helped us rebalancing as well.
• I also sold 10k shares of Pengana Private Equity (PE1.AX) as the price now seems to reflect the NAV including the expected value of SpaceX at its upcoming IPO. I bought 5k shares of Regal Investment Fund (RF1.AX) instead as it is trading below NAV.

Here are the income and spending accounts * for this month:

I just realised that I have been treating tax on employer superannuation contributions and tax on SMSF contributions asymmetrically and tax on superannuation earnings asymmetrically with tax on non-superannuation investment returns. I have been deducting contributions tax from contributions for employer super inside the "other income" category but all the tax paid on the SMSF, which includes contributions tax, has been relegated to "tax credit". Similarly, all tax paid on non-super investment returns has been in "Other income" but all tax paid on superannuation earnings is in "tax credit".

I think the solution is to deduct all the tax actually paid by the SMSF from other income, while leaving the tax credits received by the SMSF in "tax credit" obviously, but also all the imputed tax on employer super investment earnings will stay in tax credit because we never actually receive that money. The accounts above employ this new approach. This will give us a better picture of how we are performing relative to the 4% rule.

Other income includes Moominmama's salary and employer superannuation contributions but also the tax paid by the SMSF, which was AUD 16k this month.. It was a low spending month at AUD 6k, which is about the same as we spent in March. This number does not include our mortgage payments, which are regarded here as saving and investment costs. Dissaving amounted to AUD 18k, mainly because of the SMSF tax. This is still within the 4% rule limit of AUD 23k. We gained AUD 30k investing, all of which was in retirement accounts. We received a dividend from WAM Capital in the SMSF with associated franking credits this month. We also paid a lot of tax to the ATO from the SMSF. As a result of all this, net worth rose by AUD 6k to AUD 8.231 million. This is net worth is lower than that reported last month due to a fall in the estimated value of our house, where I use the same value for all months of the year.

* Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey shaded rows are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, net tax returns minus superannuation contribution tax and all SMSF tax payments to the ATO. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends etc. and imputed tax on industry superannuation returns. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances. 

Having Another Run at Treasury Wine Estates

I did well on my trade last time. Stock is beaten down but rebounding a little. I sold 50 shares of Berkshire Hathaway to fund this.

 Daou Vineyard, California

Fixing Margin Loan Interest Rate?

A year ago, I fixed most of my CommSec margin loan at a constant rate for the year ahead. The rate I got was 7.54% compared to a variable rate of 9.4%. I just got an email from CommSec asking whether I want to fix my rate again. The fixed rate is now 9.2%, but the variable rate has only increased to 9.65%. Clearly, I made the right choice to fix my loan, but this doesn't look like a good option going forward. Instead, I will reduce my borrowing probably by selling my gold ETF holdings, or at least some of them, especially if the recent budget CGT measures are passed by Parliament. The Greens hold the balance of power, but they think that nominal gains should be taxed at ordinary income tax rates and that there should be no grandfathering, so they might yet derail things for Labor.

Capital Gains Can Vary Radically Depending on the Currency They Are Measured In!

Our SMSF provider only completed our 2024-25 financial year accounts at the end of April. I check these carefully before signing off and paying the ATO. They have made mistakes in capital gains calculations in the past.

I thought that was the case this time too for our investments in the Fidelity Bitcoin ETF and Defi Technologies. So, I challenged their calculation. Their response was that the numbers were correct if I converted the purchases and sales to Australian Dollars using spot exchange rates on the exact days of the transactions. 

I don't use this method in my own tax accounting, as it is complicated. I just take the gain in USD or CAD and multiply by the exchange rate on 30th June of the tax year in question. I thought this was pretty close. It turns out it's not!

The gain on the bitcoin transaction was USD 19k. I downloaded the exchange rates from Pacific Exchange Rate Service, which I use for all my forex calculations, on each transaction day–there were many purchases–and multiplied the USD amounts by those exchange rates. Then I deducted the sum of all the purchases in AUD from the sale amount in AUD. The capital gain turned out to be AUD 53k! 

This is as if the Australian Dollar to US Dollar exchange rate was 35 cents, when it was never below 60 cents. The reason this happened was that I sold when the exchange rate was only 60 US cents but bought at higher exchange rates. Given the USD gain was not that big relative to the size of the transactions, the difference in exchange rates was levered up into a large AUD gain. I never thought something this extreme was possible. 

The Defi Technologies gains were not as radically different in the two currencies because I made more money on those relative to the size of the transactions. The tax bill for the bitcoin trade of AUD 8k is more than half of the SMSF's annual tax bill of AUD 14.4k.

54 Wellington

The Liberman Family ended up liquidating their property fund as a result of developing this office building. And ASA Diversified Property Fund, which our SMSF is a unitholder of, ended up buying it for a bargain price that is much less than replacement cost.

Australian Commonwealth Budget 2026

The budget speech was tonight, and all of the worst stuff that was leaked in the lead up to the budget appears to be in it. The worst is a minimum 30% tax on capital gains instead of up till now a maximum of 23.5%! Australia now has the most favourable tax treatment of dividends in the world and the least favourable treatment of capital gains. I'm sure Labor is thinking about that discrepancy. They were in 2019. I am exactly the type of person worst hit by this budget–a retiree probably in the 30% tax bracket.

The existing capital gains tax discount served two purposes. One is that taxing gains that are just due to inflation seems unfair (though we do that to interest payments), and the second is that companies already pay corporation tax on the profits they reinvest to generate capital gains. While franked dividends in Australia fully pass on to shareholders a credit for tax already paid, the current CGT regime partially does that. Whether or not replacing that with inflation indexation makes sense, a minimum 30% tax on capital gains seems especially unfair. 

I am already thinking about how to adapt to the new regime. I probably will sell my gold ETF holdings and replace them with futures contracts due to the new minimum 30% capital gains tax. And probably put the futures inside our SMSF for good measure. Freeing up the capital will allow me to reduce debt, contribute to super as much as I can and buy some dividend yielding investment instead.

Our Pershing Square Holdings, 3i, Berkshire Hathaway, Masterworks, and Angellist investments are all less attractive. Should also reconsider our accounts (outside the SMSF) with Colonial First State (CFS Imputation Fund and Acadian Global Long-Short Fund) that distribute capital gains. It doesn't make sense to get rid of all investments likely to have real capital gains. Instead, the expected rate of return needs to be high enough post-tax to hold onto those investments. 

Also, it seems that the 30% minimum CGT will only apply to the gains relative to the investment's value at 1 July 2027. So, there is no rush to make changes. This is going to greatly complicate tax calculations.