Fixed My Margin Loan Rate Again

 

The Reserve Bank of Australia Building

Same as last year, I just fixed my margin loan rate for the next financial year. The variable rate offered by CommSec was 9.4% and the fixed rate for one year is 7.54%. The Reserve Bank would need to cut interest rates by an average of 1.86% over the year for the variable rate to be better. The current RBA cash rate is 3.85%. Under the assumption that they cut in a straight line, even if they cut rates to zero by June 2026 the fixed rate is better. The only way the variable rate would be better is if they frontload a very significant cut of say 1.5% and then end up with a cut of 2.5% or so in total at the end of the year. I don't see them frontloading to that degree given history. Anyway, we will see if I was right...

April 2025 Report

April was our third down month in a row, though the loss was less than in the previous two months. I also went through something of a mental health crisis involving insomnia. I am already beginning to feel better. As a result of the crisis I closed all our investments listed on North American markets. I also decided to continue in my job on a full-time basis for now rather than quit or go part time. Also, because the information ratio of our SMSF is now lower than both Unisuper and PSS(AP), I am redirecting our non-concessional contributions to the latter funds instead of to the SMSF. On the other hand, the SMSF's rate of return since inception still beats the professionally managed funds (8.4% p.a. vs. 5.7% and 6.6%). But I got that extra return by taking on more risk. I now think that was too much risk for my health.

 

The Australian Dollar rose from USD 0.6240 to USD 0.6392 meaning that USD investment returns are better than AUD investment returns. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 0.98%

S&P 500: -0.68%

HFRI Hedge Fund Index: 0.18% (forecast)

Australian Dollar Benchmarks

ASX 200: 3.63%

Target Portfolio: 0.58% (forecast - depends on HFRI result)

Australian 60/40 benchmark: 0.48%

We lost 0.93% in Australian Dollar terms or gained 1.49% in US Dollar terms. So we outperformed the US Dollar indices and underperformed the Australian Dollar benchmarks.

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. Performance was mixed, with rest of the world stocks having the worst rate of return and the most negative contribution to overall return followed by Australian small cap in terms of rate of return. Gold performed best, but private equity made the most positive contribution to total return (with gold in second place).

Things that worked well this month:

• 3i (III.L) was the star performer, gaining AUD 45k. Gold gained AUD 32k and Australian Dollar Futures 10k.

What really didn't work:

• Defi Technologies (DEFI.NE) was the biggest loser at AUD 52k. Bitcoin lost 33k, Pershing Square Holdings (PSH.L) 18k, Aspect Diversified Futures 11k, Regal Partners (RPL.AX) 12k, and Winton Global Alpha 10k.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. 

These are now measured from the end of April 2020 and so are quite different to last month's data as they include one month of the post-pandemic rebound in the baseline value. Our alpha relative to the ASX200 fell to 3.15% with a beta of only 0.49. We still have much lower volatility, resulting in a Sharpe ratio of 1.12 vs. 0.93. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is almost three percentage points lower.

We moved away from our target allocation partly because we changed the allocation and partly because of our trades. Our actual allocation currently looks like this:

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

We receive employer superannuation contributions every two weeks. We make an annual concessional contribution to Moominmama's superannuation to reach the annual cap on contributions. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these back to our superannuation accounts. (around AUD 4k net contribution per month). I made the following additional moves this month:

• I sold all our position in Defi Technologies (DEFI.NE and DEFTF). We made a 90%+ IRR on the investment, which is some consolation, despite giving up the potential for more profit.
• We sold all our position in the Fidelity Bitcoin ETF (FBTC) (for a 17% IRR) and opened a much smaller position in Australia in the Monochrome Bitcoin ETF (IBTC.AX). Our allocation is now just 1.7% of net worth, which removed my anxiety entirely. My mistake was buying too much bitcoin at relatively high prices after first entering the investment at a reasonable price. This made me anxious about losing money and I sold out near a local low. Maybe we will do better next cycle. As a result of these two moves, we now have a huge pile of cash to re-invest - near AUD 700k.
• I bought 500 shares of IOZ.AX, an ASX200 ETF. This is to begin to match the new target allocation that has a larger allocation to long-only shares. 
• I bought 40,000 shares of WAM Capital (WAM.AX), which is a small cap Australian stock fund managed by Wilson Asset Management. It has a very good track record. Another move to match the new target. We will gradually buy into these positions, which are both still very small.
• I did a quick trade of 5,000 RF1.AX shares (bought these by mistake in the wrong account!). I bought 15,000 RF1.AX shares in the SMSF.
  

Update to Target Portfolio

It's time to update the target portfolio again. The last time I posted about this was here I think. The main change is that it is getting harder to find good quality accessible hedge funds. Our allocation to Pershing Square Holdings (PSH.L) is 6.3% of net worth, so I don't really want to increase that. Regal Investment Fund (RF1.AX) keeps reducing the share of hedge funds in their allocation. Tribeca Global Resources (TGF.AX) and to some degree Cadence Opportunities(CDO.AX) have been poor performers. The L1 Long-Short Fund (LSF.AX) is a possibility, as it has outperformed RF1 over 5 years. It didn't perform well in 2023 and 2024, but is doing well so far in 2025.

Also, managed futures have done poorly in the latest crisis, though often they perform better after a crisis. So, we are cutting allocations to these asset classes and increasing the allocation to long-only shares. This also reflects that I am planning on allocating more to our employer superannuation funds - Unisuper and PSS(AP). We also suddenly have a lot of cash. Reasons for these two things will come in a later post.

The following does not include cash in our regular bank accounts, which is around 3% of total assets currently. 

At the top level 60% is allocated to equity and 40% to other.

Equity: 27.5% long-only, 20% private equity, 12.5% hedge funds. 

Long-only: 10% Australian large cap, 5% Australian small cap, 8% US, 4.5% ROW.

Private equity: 10% venture, 10% buyout, SPACs etc.

We will try to balance private equity and hedge funds between Australian and foreign too.

Other: 15% real assets (real estate, art etc.), 10% gold, 7.5% futures (managed futures, bitcoin, direct futures, cash in trading accounts), 7.5% fixed income (bonds and private credit). 

At the moment we are overweight gold, cash (classified as futures), and private equity, and underweight the other asset classes.

March 2025 Report

March was a second down month in a row. The Australian Dollar rose from USD 0.6208 to USD 0.6240 meaning that USD investment returns are a bit better than AUD investment returns. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -3.90%

S&P 500: -5.63%

HFRI Hedge Fund Index: -0.91% (forecast)

Australian Dollar Benchmarks

ASX 200: -3.12%

Target Portfolio: -2.04% (forecast - depends on HFRI result)

Australian 60/40 benchmark: -2.45%

We lost 3.20% in Australian Dollar terms or 2.72% in US Dollar terms. So we out-performed the international stock indices, roughly matched the ASX 200 but underperformed HFRI and the target and 60/40 benchmarks. The SMSF lost 3.94%. Better than the previous month but still bad.

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. All asset classes lost money apart from gold, which gained 7.4% in AUD terms. Australian small cap was the worst loser, down 16.5%.

Things that worked well this month:

• Only gold gained more than AUD 10k. It was up AUD 48k.

What really didn't work:

• Eight investments lost more than AUD 10k. The worst was Pershing Square Holdings (PSH.L) down AUD 53k.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. 

Because these are measured from the pandemic crash bottom in March 2020 the numbers have changed significantly from last month. Both our performance and that of the benchmarks jumped strongly. But the ASX performance was particularly strong and we now underperform the index. We still have much lower volatility, resulting in a Sharpe ratio of 1.24 vs. 0.98. Our alpha relative to the ASX200 fell to 3.65% (from 4.48%) with a beta of only 0.49. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is three percentage points lower.

We moved away from our target allocation in large part due to the switch out of TIAA Real Estate but also due to losses at Pershing Square and other hedge funds. Our actual allocation currently looks like this:

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

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made quite a lot of additional moves this month:

• I did a trade in shares of Metrics Income Opportunities Fund (MOT.AX). Buying 15k shares for a couple of days generating around AUD 1,400 in profit.
• I sold 50k shares of URF.AX (US residential real estate fund) to fund the trade. Wilson Asset Management (via WAR.AX) exited this fund, thinking that the potentially gain going forward was not that great. We still have 150k shares.
• I bought 16k shares of CD3.AX (private equity) with the proceeds of these first two moves. It is trading very far below NAV.
• I sold 17k shares of TGF.AX (Tribeca Global Resources) and bought 5k shares of Regal Partners (RPL.AX). That has not been a good move so far.  
• I did a couple of trades in Bitcoin futures for about a breakeven.
• I started a trade in James Hardie (JHX.AX) shares. It's not gone well so far. 
• I did some tax loss harvesting trades, selling in some names and buying in others. That resulted in a net sale of around 3k Cadence Opportunity Fund (CDO.AX) shares.
• I switched all my holding of TIAA Real Estate to CREF Social Choice (a 60/40 balanced fund) in my US retirement account. From the perspective of April, this was not a good move!

Investment Action Plan

This is the action plan resulting from the Investments Review:

Immediate Action

1. Stop re-investing distributions at Winton Global Alpha.

2. Stop re-investing distributions at Aspect Diversified Futures. 

3. Stop re-investing distributions at ASADPF.

4. Switch from TIAA Real Estate to CREF Social Choice in my US retirement account.

Longer Term

5. Monitor and sell: Bitcoin, URF, Defi Technologies, TGF

6. Monitor and reduce: WAR, CDO, WMA

7. Add? CD3, WCMQ, Domacom if the management company looks more stable. 

 

Investments Review 8: Developing Alternative Investments

The last installment of the Investments Review, though, actually, there will be an action plan coming up!

Bitcoin Portfolio share: 11.9% IRR: 40%. We hold Bitcoin across the SMSF and our individual Interactive Brokers accounts. I first got into Bitcoin in 2019 when CME futures were introduced, thinking it would be good to trade it. I made some money and gave some back. Then last year, when the spot ETFs were launched I decided to do longer term trading. I got in a bit late and made things worse for myself by buying more when the price had already risen into the $70k range. Then the late 2024 surge generated some profit, which has been partially given back at this stage. The current game plan is to sell the ETFs sometime this year, based on market indicators. I am beginning to think of switching then to shorter term trading again, we will see.

Winton Global Alpha Portfolio share: 3.3% IRR: 4%. This is my larger managed futures investment. We hold it in the SMSF as it is not tax efficient. It didn't do well when interest rates were low and especially going into the pandemic. Then there was a big surge, as interest rates increased. These investments do well in high interest rate/high inflation environments. Recently, I redeemed some of the investment. Possibly, I should set distributions to be paid out rather than re-invested.

Masterworks Portfolio share: 2.6% IRR: 3%. I started investing through this fractional art investing platform in 2018. I have had a three profitable "exits" but the remainder of the portfolio is mostly down and I haven't added more. The IRR is pretty low. I will wait for this to gradually wind down I think.

Aspect Diversified Futures Portfolio share: 1.9% IRR: 12%. I invested in this (through Colonial First State) to diversify my managed futures holdings. We hold this in the SMSF too. The period of rising interest rates was good, but it is not doing so well since interest rates started to decline. Possibly, I should set the distributions to be paid out rather than be re-invested.

CD3 Portfolio share: 1.6% IRR: 13%. This ASX listed fund mostly invests in US private equity. It is also in the SMSF. It is trading at a large discount to NAV and has a good IRR. The portfolio is quite mature and exits are occurring. So, I think this is a good investment that I will continue to hold and maybe add more to.

Investments Review 7: Developing Real Estate Investments

The smaller investments have done better here, which is not optimal...

TIAA Real Estate Portfolio Share: 3.3% IRR: 4%.  I don't have a chart for this one. Currently this is the only holding in my US retirement account (403b). I would have done better investing in a balanced fund instead. The advantages of this fund are that it has very low volatility and it is possible to predict when it is going to go up or down. So, I have switched between this and the CREF Social Choice Fund. But just sticking with the latter would have given a better return. So, perhaps I just should switch back to that.

ASADPF Portfolio Share: 1.9% IRR: 3%. This fund was originally run by Australian Unity, had a fair degree of leverage and had performed well. It was one of the initial investments in our SMSF. It also has low exposure to office property. Most Australia property funds are office-centric. But profit peaked in February 2023 and the unit value has declined 14% since then. Australian Unity made a various attempts to sell or merge the fund. In the end. ASA took it over. It is very illiquid, though we could get the distributions paid out instead of reinvested. I have been thinking of doing that.

 

URF Portfolio Share: 1.0% IRR: 10%. This is a listed fund invested in residential real estate in the New York metro area. The managers are gradually selling off the assets. The original investors in the fund lost lots of money. I came in when it was already distressed. The fund continues to trade a lot below net asset value but has caught up quite a bit recently and so we have reduced our holding. The fund NAV does not take into the selling costs of the inventory. So probably fair value is near 50 cents rather than the stated 60 cents per share. It currently trades at about 40 cents. I would sell the rest if it got nearer to 50 cents.

 

Domacom Investments Portfolio Share: 0.8% IRR: 13%. Domacom is a platform for making fractional investments in real estate etc. The company, which I have also invested in, has struggled to build a big enough portfolio to be profitable and is perpetually on the brink of bankruptcy. It is in the process of re-inventing itself as Assetora. But some of the investments on the platform, which are in segregated funds, have been quite profitable. I have bought into investments after they traded below their original offer prices. Initially, I invested in a farm, which has now been sold, then in two properties near the new Sydney airport, and two NDIS properties in Perth and the Sunshine Coast. All of these are doing well.