July 2025 Report

In June, the Australian Dollar fell from USD 0.6559 to USD 0.6433 meaning that USD investment returns are worse than AUD investment returns. Stock markets rose (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 1.38%

S&P 500: 2.24%

HFRI Hedge Fund Index: 0.27% (forecast)

Australian Dollar Benchmarks

ASX 200: 2.36%

Target Portfolio: 1.82% (forecast - depends on HFRI result)

Australian 60/40 benchmark: 1.90%

We gained 3.38% in Australian Dollar terms or 1.38% in US Dollar terms. So the only benchmark we didn't beat was the S&P 500. It seemed that some stocks that were beaten down at the end of the last Australian financial year rebounded strongly. A good example is Regal Partners (RPL.AX), which gained 35%. Maybe a classic case of selling for tax losses. In absolute Australian Dollar terms it was our fourth best month ever gaining AUD 203k. November 2024 was the best ever month with a gain of AUD 335k followed by January 2025 (280k) and March 2024 (229k).

Our SMSF returned 4.59% beating Unisuper (1.67%) and PSS(AP) (2.08%).  This was a welcome change after five months of under-performance.

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 had positive returns. Australian small cap had the greatest return and hedge funds made the largest contribution to total return.

Things that worked well this month:

• Ten investments gained more than AUD 10k: Pershing Square Holdings (PSH.L 40k), Regal Partners (RPL.AX, 22k – RPL's best month so far for me), Regal Investment Fund (RF1.AX, 22k), Pengana Private Equity (PE1.AX, 15k), Bitcoin (15k), Unisuper (12k), Gold (12k), WAM Capital (WAM.AX, 12k), PSS(AP) (11k), and WAM Alternatives (11k).

What really didn't work:

• Australian Dollar Futures lost AUD 12k. (-14k).

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 four benchmarks. This month, we have added the Vanguard 60/40 ETF portfolio to the set of benchmarks. The middle block gives our performance relative to the indices. 

Our alpha relative to the ASX200 is 3.2% with a beta of only 0.49. We still have much lower volatility, resulting in a information ratio of 1.46 vs. 1.12. We capture much less of the downside moves than the upside moves in the market. We also have very good performance relative to the Vanguard 60/40 portfolio with the same volatility but 4% p.a. more return. We captured 100% of the upside of this portfolio but only 60% of the downside. 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 far higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is more than four percentage points lower.

We moved a little bit away our target allocation. Our actual allocation currently looks like this:

About 65% 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 liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We make monthly concessional contributions 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 my superannuation accounts. I made the following additional moves this month:

• Made a USD 7,500 investment in African start-up Yassir. In my reporting, all these small investments are reported together with the UV Rolling Fund. Similarly, individual paintings I invested in at Masterworks are all reported together and different property investments at Assetora (formerly Domacom) are wrapped together.
• Bought 400 more shares of the Monochrome bitcoin ETF (IBTC.AX). 
• Bought 2,000 more shares of WCM Global Quality (WCMQ.AX). 

Spending 2024-25

Each year, I report on income and spending for the Australian financial year, which runs from 1 July to 30 June. This makes it easy to do a break down of gross income including taxes that's comparable to many you'll see online, though all our numbers are in Australian Dollars. Here is last year's report. At the top level we can break down total gross income (as reported in our tax returns plus employer superannuation contributions that are paid on top of nominal salary) into the following categories of spending (click on the image to read more easily):

The gross income for this year (bottom line) is just an estimate. It is based on the gross income we expect to report in our tax returns (before investment expenses etc.) plus employer superannuation contributions. Gross income is forecast to rise by 9% this year after falling for three years. Of course, adjusted for inflation it is still below the 2020-21 peak.

Tax includes local property tax as well as income tax (projected) and tax on superannuation contributions. Income tax is expected to rise by 19%! This is because we have run out of capital losses to offset capital gains. Investing costs include margin interest. Mortgage interest is included in spending, while mortgage principal payments are considered as saving. Spending also includes the insurance premia paid through our superannuation. Current saving is then what is left over. This is much bigger than saving out of salaries because gross income includes investment returns reported in our tax returns. The latter number depends on capital gains reported for tax purposes, so is fairly arbitrary. Spending fell for the first time since I started this spreadsheet, by 4%. Mortgage principal saving doubled, because we are keeping more money in our offset account, reducing mortgage interest payments. Graphically, the breakdown above looks like this:

We break down spending into quite detailed categories. Some of these are then aggregated up into broader categories as shown here:

Here, I include mortgage interest in housing spending. In the accounts I report at the end of the calendar year I include it in investment costs. The idea of including interest in housing costs here is to make this spending report more similar to others on the web. 

Our biggest spending category, if we don't count tax, is now childcare and education, which continues to trend upwards. As mentioned above, the income and tax numbers are all estimates. Commentary on each category follows:

Employer superannuation contributions: These include employer contributions (we don't do any salary sacrifice contributions) but not concessional contributions we paid to the SMSF this year.

Superannuation contributions tax: The 15% tax on concessional superannuation contributions. This includes tax on our concessional contributions to the SMSF.

Franking credits: Income reported on our tax returns includes franking credits (tax paid by companies we invest in). We need to deduct this money which we don't receive as cash but is included in gross income. Foreign tax paid is the same story.

Income tax is one category that has fallen since 2017-18! But it has been offset by increasing franking credits, which inflate top line income, and superannuation contributions tax.

Life and disability insurance: I have been trying to bring this under control and the amount paid has also fallen since 2017-18 a result.

Health: Includes health insurance and direct spending. Spending peaked with the birth of our second child.

Housing: Includes mortgage interest, maintenance, and body corporate fees (condo association). It is down this year because we parked more cash in our offset account reducing the mortgage interest we need to pay.

Transport: About 60% is spending on our car and 40% is my spending on Uber, e-scooters, buses etc.

Utilities: This includes water, gas, electricity, telephone, internet, and online storage etc.

Subscriptions: Includes all payments for online electronic services that aren't basic infrastructure. It's has levelled out after increasing sharply during the pandemic.

Supermarkets: Includes convenience stores, liquor stores etc as well as supermarkets. It has been constant for the last four years.

Restaurants: This was low in 2017-18 because we spent a lot of cash at restaurants and during the pandemic for obvious reasons. It has now levelled out. In fact we spent quite a bit on restaurants while travelling in China and Thailand that either came out of Chinese accounts that aren't included here or in cash.

Cash spending: This is up strongly this year due to spending in cash in Thailand.

Department stores: All other stores selling goods that aren't supermarkets. No real trend here.

Mail order: This has come down over the last four years. We now get mail order direct from China, which is paid for from China and doesn't enter these accounts.

Childcare and education: We are paying for private school for both children now, plus music classes, swimming classes...

Travel: This includes flights, hotels etc. It was very high in 2017-18 when we went to Europe and Japan. In 2020-21 it was down to zero due to the pandemic and having a small child. It again rose this year as we travelled to Queensland in July 2024 and China and Thailand in 2024-25.

Charity: Not much trend.

Other: This is mostly other services. It includes everything from haircuts to professional photography.

This year's reduced spending was mainly driven by reduced interest and education costs.

Sold My Shares Rather Than Receive a Dividend!

WCM Global Quality just announced that they expect to pay a $1.73 per share unfranked dividend. I only bought shares in my name this year. My 4.250 shares would receive a $7,300 dividend taxed at my marginal rate of 47%! Instead, I sold the shares for a capital gain of just under $800, which as it is a short-term gain will be taxed at the same rate. I didn't reckon on this being such a tax inefficient investment. I am keeping Moominmama's shares for now. It would make more sense to sell her more recently acquired shares. But her older shares, even after the long-term capital gains tax discount would be more costly to sell than to keep.

I am putting the proceeds into the First Sentier Imputation Fund. This is a case where I used the target allocation to tell me what to invest in. According to it, I need more large cap Australian stocks... 

Switching from Generation Global to Acadian Global Long-Short

Generation Global Fund is one of our longest held investments. I first invested in April 2008. It was a good fund but has been weaker recently. I also invested in the Acadian Global Long-Short Fund back in April 2008. But I exited in 2012 because it had underperformed and we needed the cash for our house-buying fund.

It turns out that that was about when the fund started to outperform. Its overall track record since inception has now been very good with a beta of 0.3 to the MSCI All Country World Index and an alpha of 7.7%. In the last 5 years it has done even better:

Beta has been 0.3 over the last five years too, while alpha has been even higher. I noticed because of an article in The Australian. I then went and downloaded the data from Colonial First State (CFS) and did the analysis. So, I am switching from Generation to Acadian. This will tilt the portfolio away from an overweight on US stocks and back towards hedge funds. Though this hedge fund has a strong weight on US stocks itself.

P.S. 14 June 2025

I have also decided to switch from Aspect Diversified Futures to this Acadian Fund in our SMSF. Aspect was flagged as an underperformer in our Investments Review.

I haven't managed to do either transaction yet. I found that the manager still has Moominmama's old mobile number and to change your phone number you need to use your existing phone as authentication. You can log into the account using email for authentication. So I placed a secure request inside the account to change the number. They are just refusing to do the switch at "this time" in the SMSF account. Will try again on Monday and phone them if it doesn't work.

P.P.S. 17 June 2025 

I phoned CFS and they called me back. It turns out that CFS's "mezzanine" investments each have separate PDSs (prospectuses) for each fund manager. So, I had to make a new application for the Acadian Fund rather than a switch. I have now done that. So, we are halfway there. By the way, this new hedge fund investment means I am again tweaking the target portfolio to make sure it remains a good benchmark. I am raising hedge funds to 15%, reducing RoW stocks to 4%, Australian large cap to 9% and Australian small cap to 4%.

Another Tweak to Target Portfolio

Minor update to the existing allocation. Am combining cash with bonds and private equity and giving it a 10% allocation. Previously bonds alone were at 7.5% and cash was not included in the allocation. Reducing the target allocation to real assets as a result from 15% to 12.5%.

IWT Conscious Spending Plan 2024-25

I updated the I Will Teach to Be Rich Conscious Spending Plan that I last did more than a year ago. I used data for the 2024-25 Australian financial year. Here it is (as before in Australian Dollars):

In our CSP, the gap between gross salary and take home pay is purely taxes. We count the employer retirement contributions as part of take home pay. A big shortcoming of Ramit's conscious spending plan is that it doesn't differentiate between taxes and pre-tax retirement saving as deductions from gross earnings. The show also ignores social security. So often he is telling people to increase their investment rate when they may already be investing enough for retirement between pre-tax retirement and social security contributions. 

What has changed since I last did this? The biggest differences are that, first, we now have about AUD 1 million more net worth achieved through growing investments and savings and reducing debt. Second, we now have a lot of savings, which is a response to higher interest rates, as most of these savings are in our "offset account" that reduces the mortgage interest we have to pay. I still haven't added any savings goals though. This time I computed the miscellaneous spending category as the sum of medical, department stores, and home maintenance categories rather than just using 15% of everything. "Fixed costs" remained around three quarters of take home pay. Estimated "guilt-free spending" went up to 13% of take home pay, which is still below Ramit's guideline. This is mainly because travel spending was up. But everything in this category was up. 

The way I computed things this time, we end up with AUD 2,300 per month in dissaving to fund our lifestyle... AUD 1,675 of this is mortgage principal, which I usually count as savings but count as spending here. Actually, I count mortgage interest usually as an investment loss... *  I included the total mortgage payment in spending here. If we make those two adjustments we are actually saving money each month in addition to the pre-tax retirement saving.

I wonder what advice Ramit would give us? I think he'd say that we are doing OK. We are investing 10% per month the way I have computed things and we have a high net worth that we increased substantially despite our high "fixed costs", even though if I had excluded the employer superannuation contributions from take home pay we would be dissaving.

* In my annual financial year spending breakdowns I count mortgage interest as spending, while in my annual accounts (and monthly investment returns) I include it in investment return rather than spending. So, I am now reporting this in three different ways...

May 2025 Report

In May, the Australian Dollar rose from USD 0.6392 to USD 0.6431 meaning that USD investment returns are a bit better than AUD investment returns. Stock markets rose (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 5.81%

S&P 500: 6.29%

HFRI Hedge Fund Index: 1.30% (forecast)

Australian Dollar Benchmarks

ASX 200: 4.38%

Target Portfolio: 3.70% (forecast - depends on HFRI result)

Australian 60/40 benchmark: 3.17%

We gained 2.27% in Australian Dollar terms or gained 2.90% in US Dollar terms. So the only benchmark we are expected to beat is the HFRI. We underperformed the target portfolio because of the very high private equity returns of 14% for venture and 11% for buyout that fed into it. By comparison we earned 0.89% on our private equity investments.

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 but gold had positive returns with the strongest returns from Australian small cap and the largest contribution from hedge funds, mainly due to a rebound in Pershing Square Holdings.

Things that worked well this month:

• Six investments gained more than AUD 10k: Pershing Square Holdings (PSH.L, 37k), Unisuper (23k), PSS(AP) (15k), Regal Partners (RPL.AX, 14k), WCM Global (WCMQ.AX, 12k), and Bitcoin (12k).

What really didn't work:

• Regal Investment Fund (RF1.AX) lost AUD 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 four benchmarks. This month, we have added the Vanguard 60/40 ETF portfolio to the set of benchmarks. The middle block gives our performance relative to the indices. 

These are now measured from the end of May 2020. Our alpha relative to the ASX200 fell to 3.1% with a beta of only 0.48. We still have much lower volatility, resulting in a information ratio of 1.43 vs. 1.11. We capture much less of the downside moves than the upside moves in the market. We also have very good performance relative to the Vanguard 60/40 portfolio with the same volatility but 4% p.a. more return. 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 more than three percentage points lower.

We moved strongly towards our target allocation as we completed redeployment of cash from the sales in April. 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 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 my superannuation accounts. (around AUD 4k net contribution per month). It was another busy month. I made the following additional moves this month:

• I made a UK pension contribution for the 2024-25 financial year.
• I bought 200 shares of Berkshire Hathaway B (BRK/B). I think Greg Abel may find better things to do with the cash pile than Buffett did and, as he is an operations guy, rationalize some of the existing subsidiaries.
• I bought 40k shares of a Metrics private credit LIT (MOT.AX). The idea is that this will fund TTR pension payouts next financial year. It is trading about 7% below NAV so has some margin of safety.
• I sold 1,000 shares of the gold ETF PMGOLD.AX. We hold 13k shares now.
  
• I bought net 2.5k more shares of an ASX200 ETF (IOZ.AX). Yes, I'm getting more comfortable with passive investing for the long equity portion of our portfolio. We now have 3k shares.
  
• I bought 2,000 more shares of the WCM Global Quality managed ETF (WCMQ.AX). We now have 13k shares.
• I bought 10k more shares of the Pengana private equity LIT (PE1.AX). We now have 87k shares.
• I bought net 60k more shares of the WAM Capital LIC (WAM.AX). We now have 100k shares.
• I bought 1,175 more shares of a bitcoin ETF (IBTC.AX). We now have 8k shares. Roughly 0.8 BTC.
• I bought 300 more shares of 3i (III.L) after it sold off on what looks like a great earnings report. Earnings on stated NAV were 25% up 25% on the previous year. It trades way above NAV, but that is because NAV is stated pretty conservatively I think. We now have 3,800 shares.
• I bought 500 more shares of Pershing Square Holdings (PSH.L). Their reduction of their position in Universal Music, increase in positions in tech stocks, and possibility of strong performance for Fannie Mae and Freddie Mac together with the price being way below NAV, encouraged me to add to the position. We now have 5,500 shares.