Individual Investment Performance 2023

 

To better understand our investment underperformance in 2023 let's dive into the returns on each individual investment. If we'd managed to avoid all the losing investments in the table we would have roughly matched the return on the target portfolio. So, as usual it is the losers which hurt. In particular, the Cadence, Cadence Opportunities, and Tribeca listed hedge funds all did poorly. The worst of all though was the Aura VF2 venture capital fund. One of their companies - Lygon - went bankrupt and was then restructured. Once you are in a venture fund you can't really get out and I invested in this fund because VF1 has done well over time.

When I reviewed the hedge fund investments two years ago, these funds were all doing well. I did mention that I wanted to reduce exposure to Cadence Capital, which I failed to do. Tribeca has turned out to be a very volatile investment. Sometimes they have big wins and some times big losses. I failed to get out when it traded above NAV at about the time of the review. I thought then they had reformed, but apparently not. 

The other two main losers are Domacom and the China Fund. I really should have gotten out of Domacom when it relisted on the ASX. Now it does look like they will turn things around, but dilution from new investors means we might never make any money. There's no real excuse for remaining in the  China Fund, as I have been bearish on the long-term prospects of China under Xi Jinping. It is hard to explain.

On the other hand, I lost on the TIAA Real Estate Fund, but correctly reduced my exposure. Not by enough. My gains in the CREF Social Choice Fund just balanced my losses in the Real Estate Fund in 2023.

I have much less to say about the winners. 3i and Pershing Square Holdings have turned into big winners. I could have done even better on 3i if I had not sold 20% of the position. Half of the fund is in one company - Action - which made me a bit nervous. Gold did well and the other two big winners are our employer superannuation funds. With gold, these are our three biggest investments. Pershing Square is now our fourth biggest investment.

Domacom Reinstated to ASX Quotation

On the last trading day before Christmas, Domacom has been reinstated to quotation. I wonder where the price will end up?

7:27pm

It went up! Closing at 7 cents a share. It was last quoted at 6.5 cents before being suspended. There were more shares on the buy side than the sell side most of the day.

How I Made AUD 2,900 Instantly

A couple of days ago, I went on the Domacom platform just to see if anything was new. I found an offer to sell about 10,000 units in a semi-rural property near Sydney for AUD 1.0156 placed on 30th May. But the property was revalued on 18th July by around 30%!. Almost instantly I bought the units. One downside is that I already own about AUD 10k of units in the neighboring property. Of course, I can't realize this profit, so it is just on paper. The market is very illiquid, which is why I managed to get this bargain in the first place. Both properties have a vote next March on whether to sell the properties and wind up the funds or whether to continue to hold. Recently, my first investment at Domacom held a vote and sold for a big profit.

 

To get the funds, I had to cancel my pledge to a campaign to buy rural property. My money has been tied up in the campaign for a year while they have made almost no progress on raising money. I think that in future I won't make pledges to campaigns and only engage in the secondary market. The additional advantage of that is that I avoid paying big fees for the purchase of the property and the often huge upfront cut (c. 10%) taken by the promoters of the campaign. It would be much better if they were paid by performance fees instead...

Some Good Financial News

  

Masterworks sold Lured by Cecily Brown for USD 1 million. The initial offer price was USD 605k. We are supposed to get the money within a month. I think this is the third painting they have sold, two of which were ones I invested in. 

Domacom reported to the ASX that their private placement was over-subscribed! They hope to be reintstated in the ASX soon.

April 2022 Report

World markets fell sharply with the MSCI World Index (USD gross) falling by 7.97%, the S&P 500 falling 8.72%, and the ASX 200 falling 0.85%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7494 to USD 0.7114 increasing Australian Dollar returns and reducing USD returns. We lost only 0.16% in Australian Dollar terms but lost 5.23% in US Dollar terms. The target portfolio lost by 2.34% in Australian Dollar terms and the HFRI hedge fund index is lost 0.93% in US Dollar terms. So, we out-performed all benchmarks apart from the HFRI index. I felt like I was losing a lot of money, but in Australian Dollar terms it wasn't that bad.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

In a reversal of last month real assets, gold, and futures gained money, while other asset classes lost. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold rose in Australian Dollar terms, though the USD price fell. US stocks performed worst and detracted from performance most, while gold performed best and contributed most to performance.

Things that worked well this month:

• Gold gained AUD 21k, Winton Global Alpha 10k, Tribeca Global Resources (TGF.AX) 11k, and Aspect Diversified Futures 8k.
  

What really didn't work:

• Pershing Square Holdings (-22k), Australian Dollar Futures (-17k), and Hearts and Minds (HM1.AX, -11k) all lost more than AUD 10k.

Our SMSF continues to perform quite well compared to our employer superannuation funds:

They're all indexed to 1000 in April 2021.

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 over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are basically performing a bit worse than the average hedge fund levered 1.67 times. Hedge funds have been doing well recently.

I adjusted the leverage on the URF.AX investment  to roughly 3:1 in our gross asset allocation as there still seems some possibility that the wind-up deal will be voted down by the shareholders.

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

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I invested in the Unpopular Ventures rolling fund on the AngelList platform. The initial investment is USD 10k and then the same amount each quarter for eight quarters.
• Our listed investments trusts are now all in a CommSec account within the SMSF, which means I get accurate tax reporting and can subscribe to dividend reinvestment, which I did.
  
• I sold 10k shares in Pengana Private Equity (PE1.AX). These were shares in my name that I held to get accurate tax reporting, which I don't need any more. I sold at AUD 1.69 and the price is now AUD 1.49. So, that was a good move.
• I sold AUD 30k for USD and bought one more AUD futures contract, increasing AUD exposure by about 100k, which was a mistake.
  
• I withdrew AUD 25k from Domacom Investments after two crowdfunding campaigns just vaporized. 
• But I started accumulating units in another property at Domacom. It is a market garden property near the planned Badgery's Creek Airport. 60 Devonshire Road, Rossmore.
  
• I bought 12.5k WAM Leaders shares (WLE.AX).
• I invested AUD 10k in the Winton Global Alpha Fund, which has been doing well recently, for a change as I predicted. Seems futures work well in inflationary environments but not in low inflation environments. I based this opinion on this research.
• I invested AUD 10k in the Australian Unity Diversified Property Fund.
  
• I bought AUD 7k shares in Pendal as a merger arbitrage play.
• I invested in a new painting at Masterworks: "No Hopeless". I felt this might be over-valued but took the plunge anyway.
  

Two New Investments

 I invested in another painting at Masterworks, No Hopeless by Yoshitomo Nara:

This takes my investment back up to 12 paintings again, given that Doppelbild by Albert Oehlen was sold and should pay out soon. I was a bit nervous this was overvalued but after a bit of research took the plunge anyway and invested USD 10k.

I also started buying units in a property on Domacom: 60 Devonshire Road, Rossmore, which is a market garden near the planned Badgery's Creek Airport. After the initial investors paid up big fees for the establishment of the investment, it trades below par but at the last valuation saw an uptick in value. I am thinking now it makes more sense to buy in the secondary market on Domacom instead of joining "campaigns" that seem to go nowhere. 

So far, I only invested AUD 920, but have a bid open waiting for sellers.

Domacom Appoints New Chairman and CEO

Good news at Domacom (DCL.AX). They announced today that they have appointed John Hewson as chairman and John Elkovich as the new CEO. Hewson is chairman of Crescent Finance who are collaborating with Domacom on Islamic mortgages. Domacom has interesting products but has struggled to get enough funds under management to breakeven. They need 5-10 times as much FUM to become profitable. So, though they have seen nice growth in FUM recently, 40% p.a. growth just doesn't move the needle that quickly. My hope has been that the company would be acquired. It's good to see that some other experienced people believe in the product.

I can see scope for improving the fractional investing product. I find the financial information provided on existing investments to be unclear and non-transparent. The level of explanation really needs to be stepped up to make secondary investors willing to participate and increase market liquidity in my opinion. I have only invested in one secondary investment, which is now exiting. I signed up to several "campaigns" but there is glacial progress on raising funds for them. I just discovered that two of them seem to have given up and released the pledged cash back to investors.

Hopefully, these things will improve going forward. Maybe I should send the new chairman (who is my honorary colleague) a letter with my thoughts :)

URF Selling Property Portfolio

The U.S. Masters Residential Property Fund (URF.AX) announced they are selling their property portfolio at a discount. As a result, they will pay out URFPA holders at the AUD 100 face value of the units, but ordinary equity owners of URF.AX will only get 22 cents per unit.

I didn't manage to get out in the initial auction and the price is now at 20 cents. I am down AUD 25k for this month and a AUD 15k loss overall at this point. This is my 5th worst trade or investment ever at this point.

However, this is a 10% return from here and so I guess I will hold for the moment. That will turn it into the 10th or 11th worst investment.

This was always a speculative investment and so I didn't invest too much in it. It represented 1.36% of net worth not including our house prior to this announcement. However, there are still some lessons to be learned:

1. When they recently said that they were likely going to sell the portfolio at a discount I should have sold then.

2. I should have invested in the URFPA units all along. I was put off investing in them because of their complicated structure/conditions. But they were safer than URF.AX and had a lot of potential upside.

3. There's often a good reason why the market seems to undervalue an investment. Turns out it didn't undervalue it enough, though!

4. Still, the 5th and 10th best investments have made roughly 10 times what this has lost at the moment.

In other bad news, Domacom settled the dispute for only AUD 2.5 million. That will only last them 6 months...

February 2022 Report

World markets fell but the Australian market rose with the MSCI World Index (USD gross) falling by 2.55%, the S&P 500 by 2.99%, and the ASX 200 rising by 1.66%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7063 to USD 0.7248 reducing Australian Dollar returns and increasing USD returns. We lost 1.10% in Australian Dollar terms but gained 1.49% in US Dollar terms. The target portfolio fell 2.38% in Australian Dollar terms and the HFRI hedge fund index is expected to fall 1.09% in US Dollar terms. So, we under-performed the ASX200, outperformed the other benchmarks.

It was a bit calmer month despite war breaking out in Ukraine at the end of the month. We continued to work on setting up a second brokerage account for the SMSF and transferring our holdings of listed investment trusts into it.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

All the equity categories lost money, while all the others gained. Gold both performed best and added the most to returns. US stocks was the worst performer while hedge funds detracted most from performance.

Things that worked well this month:

• Gold gained AUD 26k. WAM Alternatives (WMA.AX) and URF.AX were the next two best performers, gaining AUD 10k and AUD 6k, respectively.
  

What really didn't work:

• Hearts and Minds (HM1.AX)  and Cadence Opportunities (CDO.AX) were the two worst performers, losing AUD 13k and AUD 11k, respectively.
  

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 over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 but not so much against the other two benchmarks, which are measured in USD terms.

Our asset allocation did not change much. Private equity is still the most underweight asset class and real assets the most overweight. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• As the gold price rose, the share of gold in gross assets went over 10% and following policy I sold 500 shares of PMGOLD.AX to bring it back to 10%. 
• I sold 1,000 shares of Fortescue Metals (FMG,AX). Should have sold more...
• I opened a new position in WAM Leaders (WLE.AX), buying 20,000 shares so far.
• I bought 6k shares in Pengana Private Equity (PE1.AX) when the price was low.
• I sold 3k shares of Regal Funds (RF1.AX) to fund this.
  
• I heard that our investment in Doyle's farm through Domacom will be wound up and sold. The majority of holders voted to do this. This is my only active investment through Domacom, so a bit disappointing. Hopefully, we won't lose too much considering selling costs and that we have had very little upside so far in this investment. The management company, Domacom (DCL.AX), also doesn't look like relisting on the ASX any time soon.
• On the other hand, Masterworks sold their second painting, which turns out to be one I hold.
  

Good and Bad News: Masterworks Sells Doppelbild by Oehlen and Domacom Goes to Court with AustAgri

 

It's one of the paintings I invested in. The price uplift is 43%. They are claiming a 33% IRR after fees. My original investment was in early January 2021. US investors will receive payment in their "Masterworks Wallet". Don't know how foreign investors will be paid yet. I still have shares in 11 paintings I have invested in.

To counter this good news, Domacom (DCL.AX) announced today that AustAgri haven't onboarded Cedar Meats to the Domacom platform. Domacom is, therefore, demanding the AUD 8.5 million break fee, but AustAgri is disputing that they owe anything and it is going to court. This deal always sounded strange. If they have the funding to acquire Cedar Meats from other sources why would they need to pay fees to Domacom? I expect that Domacom will remain suspended from the ASX. I am pretty sceptical of recovering any of this investment at this point.

Coinvestment, Revised Target Allocation, and Rights Issue

I'm making an investment in a pre-IPO company alongside a venture capital fund and other investors. I valued the company based on their forward projections for EBITDA and the multiples similar companies listed on the stock exchange have. Of course, the company could fail and so it is sensible to take a middle valuation between the extremes of zero value and the value if the company succeeds as planned. This still gave a good gain on the current valuation. In reality, total loss is unlikely as the company is already approaching profitability. The funding is for expansion. The worst outcome is more likely a sale for the current valuation or something less to a competitor. I am planning to invest about 2% of our portfolio in this company.

This means I will have to raise my target allocation to private equity and reduce my allocations to hedge funds and long-only equities. To also take into account my future commitment to a venture capital fund I am increasing the private equity allocation of gross assets from 10% to 15%. I am reducing the hedge fund allocation from 24% to 22%, Australian large cap from 9% to 8%, US stocks from 6% to 5%, and rest of the world stocks also from 6% to 5%. I would be happy to have an even higher allocation to private equity if I had access to enough diverse good quality opportunities. So, changing the target allocation isn't just like the US government raising its debt ceiling every time they hit it :)

By contrast, I am an investor in listed company Domacom (DCL.AX), which has been suspended from the ASX for a while, pending completion of a deal to effectively acquire a company called AustAgri. The ASX instructed them to raise more capital before relisting. I don't intend to participate in the rights issue, especially as the issue price is slightly above the last traded price of the shares on the ASX. Success of the company in the short-run really depends on this AustAgri transaction and it is still hard to be certain why it is so delayed and what will happen. Even after that transaction, the company will not be in anywhere near as good a position as this pre-IPO company.

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

May 2021 Report

This was a month of consolidation as I tidied up the SMSF and its repercussions and launched a review of all our investments.

The Australian Dollar rose from USD 0.7725 to USD 0.7738. It was another month of increases in world stock markets. The MSCI World Index rose 1.61%, the S&P 500 by 0.70%, and the ASX 200 rose 2.13%. All these are total returns including dividends. We gained 1.96% in Australian Dollar terms or 2.10% in US Dollar terms. The target portfolio is expected to have gained 1.58% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.80% in US Dollar terms. So, we outperformed all benchmarks apart from the ASX 200. Here is a report on the performance of investments by asset class (currency neutral terms):

Gold added the most to performance followed by hedge funds. and only Australian small cap had a negative return. Things that worked well this month:

• Gold had a very strong performance, gaining 8.7% in AUD terms or AUD 43k. Next was Tribeca Global Resources (TGF.AX) gaining AUD 19k, and third was PSS(AP), which gained AUD 7k.
  

What really didn't work:

• The worst performer was new investment Fortescue Metals (FMG.AX), which lost AUD 5k. It was followed by Pershing Square Holdings (PSH.L) and Hearts and Minds (HM1.AX) (-AUD 4k each).
  

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 show the desired asymmetric capture and positive alpha against the ASX200 and MSCI indices. We are doing a little worse than the median hedge fund levered 1.6 times. Interestingly, USD performance is now stronger over the last five years than AUD performance because the Australian Dollar has appreciated over that time.

We stuck close to our desired long-run asset allocation. Real assets is the asset class that is now furthest from its target allocation (3.0% of total assets too much). Private equity and futures are underweight. The former will solve itself over time as Aura make capital calls. We will fix the latter this month.

 

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold some Regal Funds (RF1.AX) shares getting back down to 60k shares.
• I invested in Contango Income Generator (CIE.AX).
• I sold Treasury Wine and invested in Fortescue. This was a very bad move.
• I invested in the Ruffer Investment Company (RICA.L).
• I switched funds from Platinum International Fund to Generation Global Fund.
• I made the first investment through Domacom.
• I bought some more shares in Pershing Square Holdings (PSH.L).
  
• I invested in another painting at Masterworks.
  
• I switched funds from the CREF Social Choice Fund to the TIAA Real Estate Fund.
  
• I opened a new calendar spread trade in soybeans. 
• We applied for shares in the WAM Strategic Value IPO.
  

Investments Review: Part 3, Small Cap Australian Equities

CFS Developing Companies. Share of net worth: 2.14%. IRR: 12.86%. This is one of my oldest investments. I originally invested in May 1997. However, I sold out again in 1998 and bought back in in 2001. Until recently, when I closed my CFS superannuation account, we had a larger position. It's performance relative to CFS's "custom benchmark" has been erratic. It has strongly outperformed over 10 years but underperformed over horizons up to 5 years. Still it gained 80% in the year up to March 2021 but that was less than the benchmark's 104% gain. However, I don't see any reason to change this investment, unless someone knows a better small cap Australian fund. Wilson Microcap (WMI.AX) is such a fund but trading at a big premium to NAV.

WAM Strategic Value. Share of net worth: 2.04%. IRR: Too new. We have applied for shares in this listed investment company that is in the process of IPO-ing and is managed by Wilson Asset Management. The fund's goal is mostly to invest in undervalued closed-end funds in Australia with the aim to closing the gap. It doesn't qualify as a hedge fund as far as I am concerned because it won't go short or use puts etc. As most of these funds are small caps, I'm categorizing it as a small cap investment.

CFS Future Leaders. Share of net worth: 1.00%. IRR: 10.37%. This is the oldest investment I still have. I originally invested in December 1996. This fund invests in somewhat larger companies than Developing Companies does. It has not performed as strongly in the long run. Like Developing Companies, it outperformed its benchmark over 10 years, though not as strongly, and has underperformed in recent years. I'm inclined to roll this into Developing Companies, despite nostalgia.

Domacom (DCL.AX). Share of net worth: 0.73%. IRR: -3.04%. This is a company rather than a fund and its business is fractional property investment. The company has developed a series of innovative products but has struggled to increase funds under management and so continues to make large losses. My thesis for investing was that they would likely get acquired by a larger financial player who could put a lot more funds into their products. Really it is surprising that this is a listed company rather than a venture capital sponsored investment. Now the company has "voluntarily suspended" its shares because ASIC is investigating its merger/takeover of a company called AustAgri that has made all kinds of wild claims the most solid of which was it was buying Cedar Meats in Melbourne. Why they would want to become a Domacom managed fund, paying management fees to Domacom was not clear. In return they were supposed to receive Domacom shares. Whatever the outcome of this is I don't think this will be a complete loss, because again I think they could sell the platform. I don't have any choice but to hold at the moment.

First Investment through Domacom

 

 

I made my first investment using the Domacom platform. I bought some shares in a cattle grazing property in Victoria. Mostly, I just want to see how the platform works, so this is a very small investment. I also have made "pledges" for three "campaigns". Activity seems low on the platform in terms of either trading or crowdfunding campaigns. It's not surprising that the company seems to be focusing on other ways to generate funds under management. The platform provides quite a bit of information but I think deals mostly are a bit too nebulous to commit a lot of money to any one. For example, these are the financials for another farm property in Victoria:

What exactly are the outgoings? If there are finance costs, then how big is the mortgage on this property? The "position" has no loan listed. Was the loan paid off? But last year there were no finance costs. It's hard to understand the financials of most properties I looked at.

What farming activity is generating the rent? The pds says: "It is intended that this property will be used to derive income from mixed agriculture use including the farming of sheep and the growing of trees producing nuts." I'm doubtful about the latter. Is it happening? 

Most residential property listed on the site has fallen in value since the initial investment was made. Are initial valuations over-valuing the properties?

I think if this platform is going to be successful it needs to have much more transparent information.

April 2021 Report

This month we completed the initial investments in our self-managed superannuation fund (SMSF). I stopped systematic trading for the moment. We also reached a big round net worth number in  Australian Dollar terms. But once I raised the value of our house to reflect a recent sale in our neighborhood, I realised we would have actually reached that number in February.

The Australian Dollar rose from USD 0.7612 to USD 0.7725. It was another month of increases in world stock markets. The MSCI World Index rose 4.41%, the S&P 500 by 5.34%, and the ASX 200 rose 3.48%. All these are total returns including dividends. We gained 2.54% in Australian Dollar terms or 4.06% in US Dollar terms. The target portfolio is expected to have gained 1.76% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.07% in US Dollar terms. So, we outperformed these benchmarks and did OK vs. the MSCI. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and only Australian small cap had a negative return. Things that worked well this month:

• Tribeca Global Resources was the largest contributor in dollar terms contributing AUD 21k. Gold bounced back, contributing AUD 15k. Unisuper, Cadence Capital, and Pershing Square Holdings all also contributed more than AUD 10k. Other notable strong performers were URF.AX (NY/NJ residential real estate), 3i (UK private equity), and soybeans.
  

What really didn't work:

• The worst performers were Hearts and Minds (HM1.AX) and Domacom (DCL.AX).
  

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 show the desired asymmetric capture and positive alpha against the ASX200 index. Against the MSCI World Index we could be doing better and we are doing a little worse than the median hedge fund levered 1.6 times.

We moved decisively towards our desired long-run asset allocation again as I implemented our SMSF investments. In October 2018, when we received the inheritance we were 48 percentage points away from our target allocation at the time. Now we are less than 6 percentage points away. We compute this by calculating the Euclidean distance between the target and actual allocation vectors. This is the square root of the sum of squared differences between the actual and target allocations for each asset.  Real assets is the asset class that is now furthest from its target allocation (4.6% of total assets too little):

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. This was a very busy month. I'm only recording net changes here:

• Australian large cap: I invested in Argo Investments again.
  
• Hearts and Minds (HM1.AX): I bought back 20k shares I had sold a while ago at higher prices. This is a long only global equities fund.
  
• Hedge funds: I increased our holding of Regal Funds (RF1.AX). This wasn't intentional, but I didn't get the price I wanted in exiting part of our holding in a regular brokerage account while also establishing a position in the SMSF.
  
• Private equity: I increased our holding of the Pengana private equity fund (PE1.AX).
  
• Bonds: Our Medallion Financial baby bond matured and we bought shares in Scorpio Tankers,  Star Bulk Carriers, and Ready Capital baby bonds, increasing our net holdings of US corporate bonds by USD 50k. We also bought shares in the Australian MCP Income Opportunities Trust (MOT.AX).
  
• Art: I invested in another painting at Masterworks.
  
• Real estate: I invested in the Domacom and Australian Unity Diversified Funds. I also doubled our holding of URF.AX (NY/NJ residential property).
  
• Futures: I successfully closed a calendar spread trade in soybeans and stopped systematic trading of ASX futures.
  

Second New Property Investment: Domacom

I made a second property investment application today. This one is to Domacom which is a fractional property investment or crowdfunding platform. I have been an investor in the company itself for a while.  It is now looking quite a bit more stable than it did when I wrote about it before. It's still one of my most speculative investments. The way it works is that you put cash into an interest paying account and then bid on various crowd-funded projects. You can also get a syndicate together to invest in a property using their platform. They have a variety of other products like housing equity release for seniors – selling part of your house, rather than doing a reverse mortgage – Islamic financing for buying houses etc. Their model is supposed to allow SMSFs to invest with leverage because you buy units in a fund rather than buying a property directly. 

The focus is on residential property, but there are also more unusual opportunities like solar power and rural farmland.

March 2021 Report

This month we took some big steps towards fully setting up our self-managed super fund. Trading didn't go well, but I persisted, following the rules exactly. We also reached a big round net worth number in  Australian Dollar terms. 

The Australian Dollar fell from USD 0.7737 to USD 0.7612. The MSCI World Index rose 2.72%, the S&P 500 by 4.38%, and the ASX 200 rose 2.74%. All these are total returns including dividends. We gained 1.46% in Australian Dollar terms but lost 0.17% in US Dollar terms. The target portfolio is expected to have gained 2.00% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.30% in US Dollar terms. So, we strongly underperformed all our 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:

• Three hedge funds: Cadence Capital (AUD 20k), Regal Funds, and Platinum had the largest gains this month in absolute terms. Cadence benefited from its investment in Deepgreen metals. Domacom gained 21% or AUD 7.5k.
  

What really didn't work:

• Gold lost the most in dollar terms (AUD 11k) with Hearts and Minds (HM1.AX) and the China Fund (CHN) following up. Trading the ASX200 lost the fourth largest amount AUD 6k.
  

I thought it'd be interesting to look at the twelve month performance since the end of March 2020 when the stock market bottomed:

Portfolio shares are as at the end of March and gains are the dollar gain since March divided by the value at the end of March. Hedge funds are again the star performer, but Aussie small caps did surprisingly well.

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 show the desired asymmetric capture and positive alpha against the ASX200 index.

We moved sharply away from our desired long-run asset allocation. Rolling over my retail superannuation funds to the SMSF resulted in a big rise in cash. Cash is the asset class that is furthest from its target allocation (12% of total assets too much) followed by real assets (7% 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:

• Our SMSF received all approvals, and I rolled over my Colonial First State super funds to the SMSF, made an AUD 15k contribution to the fund, and applied for a brokerage account.
• Ready Capital called their baby bonds early, reducing our bond exposure by another USD 25k.
  
• I continued systematically daytrading ASX200 CFDs and futures.... Daytrading experienced a strong drawdown. I lost as much (including slippage) as the algorithm did (not including slippage) despite using a smaller position size, mainly because of one bad trade where Plus500 got me into the opposite direction trade than I should have been in. The trade in the wrong direction triggered near the open, when in the futures market you would have got into a trade in the right direction later in the day.
  
• I started a calendar spread in soybeans futures. Soybeans are very strongly backwardated when usually they should be in contango. I am betting that the November and May prices will converge. They went the wrong way in March but on 1st April moved very sharply in my favor.
  
• I invested USD 10k in another painting at Masterworks. I now have USD 70k invested in 7 paintings.
• I bought 15,000 Cadence Capital shares (CDM.AX) @ $1.045 per share when they announced that their pre-IPO investment in DeepGreen Metals was being acquired by a SPAC and would list on the NYSE. The current share price of Cadence gives you this investment for free.
• I sold 10,000 shares of Hearts and Minds (HM1.AX) @ $4.78 a share. The shares are trading at a large premium to the NAV and I felt that some of their recent picks of growth and tech stocks perhaps peaked. I still hold 25k shares.
• I sold half our Treasury Wine (TWE.AX) position @ $11.15 a share. Now it is down to 1% of the portfolio again, which is the default allocation for an investment in a single company.
• I bought 2000 shares of Perth Mint Gold (PMGOLD.AX) @ $22.44 and 22.56 per share. Our allocation to gold fell below the long-term weight. It is now almost exactly at 10% of gross assets.
  

Trading Not Going Well

Last three ASX200 trades were stopped out, which is very unusual. The worst in the backtest was two stop outs in a row. Each day the market goes up at the open and puts me into a long position. Then it falls and stops out. Five of the last six trades were losses. I suspect that isn't so unusual. I've done two soybeans trend-following trades and both (long) were losers too. I'm also doing a calendar spread soybean trade which is about a breakeven at this point. On the other hand, we have been doing well in some stocks like Treasury Wine and Domacom.

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.