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.

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.
  

Individual Investment Performance, July 2019

In July, generally alternative investments and small cap stocks did well and gold and our trading did poorly. Some things were just bouncing back from previous poor performance like Tribeca Global Natural Resources (TGF.AX) or Domacom (DCL.AX).

March 2020 Report

This month the financial crisis following the COVID-19 pandemic intensified. Up to around the 20th of the month there was chaos in financial markets. Many bonds fell as much or more than stocks and gold fell too as everything was liquidated. Then there began to be some stability with gold and many corporate bonds rallying again. I am now thinking that Australia might come out of this better than countries like the US and so betting a bit on Australian recovery makes sense. I am only doing that though in terms of moving towards our long-run allocation. Not over-allocating to Australian assets yet.

I expect HSBC are now happy they didn't give us a mortgage. It's not worth chasing them any more I think. We are keeping our children out of daycare and school, though technically they are still open. There was some miscommunication about applying for the subsidy and only this weekend I completed the application. Now the government announced today that childcare will be free to parents during the pandemic. I was thinking about cancelling the service, but if it is free, of course I won't. It's not 100% clear yet whether it will be free.

I think I will keep paying for my 4 year old's private preschool as we are considering the school as a long term schooling option (it goes through to year 10). Also, we are receiving a government subsidy. It's unclear yet whether this pre-school qualifies for the free childcare deal. We want to have a school for him when this crisis hopefully ends later this year. He goes to that school 2 days a week and 2.5 days to the public preschool.

All stock markets fell sharply in response to the Coronavirus pandemic. The Australian Dollar fell from USD 0.6499 to USD 0.6115 and at one point reached USD 0.55. The MSCI World Index fell 13.44%, the S&P 500 12.35%, and the ASX 200 20.42%. All these are total returns including dividends. We lost 8.95% in Australian Dollar terms and 14.33% in US Dollar terms. This was the worst monthly investment return ever in terms of absolute Australian Dollars lost (AUD 319k). The target portfolio lost 5.05% in Australian Dollar terms and the HFRI hedge fund index is expected to lose 5.88% in US Dollar terms. So, we under-performed these benchmarks though did better than the ASX 200. The value of our house, which is not included in this investment return, increased. Well, the price of houses in our city went up. Updating the monthly AUD returns chart:

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

The returns reported here are in currency neutral terms. All asset classes lost money. Australian small cap stocks was the worst performer and gold the least bad. The biggest detractors from my overall return were bonds and hedge funds. These supposed diversifiers didn't work to mitigate losses in stocks. Hedge funds in general both lost from fund performance and from the fall in the price of listed closed end funds relative to their net asset value.

Things that worked well this month:

• Pershing Square Holdings - this hedge fund did perform as intended, with the share price rising. The manager Bill Ackman made a big bet on credit default swaps that hedged the losses in the stock portfolio. Subsequently, he has closed those positions and bought more stocks. I bought more shares in PSH, which are trading around 65% of NAV.
• Treasury futures - my bet on a steepening yield curve worked and I closed half the position. The remaining position has backtracked since then.
• China Fund - I bought back our position, which has since performed well.

What really didn't work:

• Regal Funds - this was our worst performing investment this month in dollar terms. It lost 45% for the month.
• The Unisuper and PSS(AP) superannuation funds were the next biggest losers in dollar terms. They lost 13% and 9%, respectively, which is about what would be expected given a 20% fall in the Australian stock market.
• Junkier bonds like Virgin Australia. The value of Virgin Australia bonds halved. It's not our only distressed bond at this point, but just the worst. I don't know what I was thinking, buying this in the first place.
• Domacom (DCL.AX) shares fell by 2/3.

There are plenty more losing investments... We moved a little towards from our new long-run asset allocation. The shares of gold, private equity, and rest of the world stocks rose most:

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:

• Washington Gaslight and Lexmark bonds matured, releasing USD 60k plus interest. We didn't buy any new corporate bonds, so our exposure fell.
• We bought AUD 104k by selling US Dollars.
• I bought 25k Pengana Private Equity (PE1.AX) shares after the rights issue was cancelled. My timing could have been better as the shares then dipped before rebounding.
• I bought back our position in the China Fund (CHN). I figured that China is now rebounding. So far, that was good timing.
• I bought 25k Cadence Capital shares (CDM.AX). This fund has been a disaster, but the shares were trading at the value of cash that the fund has per share. So far, a good move.
• I bought 10k Tribeca Global Resources (TGF.AX) shares. Another disastrous investment in the long run, but the new shares have risen since buying them.
• I bought 25k Bluesky Alternatives shares (BAF.AX). They were trading at about 50% of NAV. I expect some of the fund's investments will be written down, but not that much overall.
• I shifted USD 4k from the TIAA Real Estate Fund to the CREF Social Choice Fund.
• I shifted about AUD 36k from the CFS Conservative Fund to the CFS Diversified Fund that has a higher risk allocation.

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...

Crowdfunded Real Estate

A relatively new investment concept is crowdfunding real estate investments. The idea is that an individual could directly invest small amounts in a range of properties or development opportunities thus reducing their risk. Rather than a fund manager picking the properties, investors could evaluate deals themselves.

I read about Fundrise on Financial Samurai. It seems to actually be closer to a traditional unlisted real estate managed fund, except there is more of a property development angle. They allow investments in both real estate debt and equity. They claim very high historical rates of return. I find it hard to understand how they could be so high. Equity investments could have leverage but debt investments must return the interest rate on the mortgage minus costs? I didn't feel that there was enough transparency around how returns are generated. In any case, unfortunately, it is not open to non-US investors.

So, I looked for crowdfunded real estate opportunities in Australia. This is what I found:

Crowdfundup – I only found one active project on the site.

Estatebaron – This website has more active deals. It focuses exclusively on property development. There seems to be very little information about each project and the site is much less polished.

Brickraise – The link seems to be dead.

Domacom – This is an ASX listed company. The company looked like they were heading to bankruptcy before a recent fundraising. The new money will only last just over half a year as their burn rate is AUD 5 million a year. They will need more than AUD 0.5 billion assets under management to break even given a 0.8% of NAV management fee. However, they have the largest number of deals on their site and have high quality information. Deals include a wide range of projects including solar farms and bioenergy as well as more conventional real estate. This is something I might consider when we have an SMSF up and running if it looks like the company will survive.

Based on this, real estate crowdfunding is not well developed in Australia. Do you know of other better websites?

November 2019 Report

A less frenetic month financially but somehow I didn't get to make any blogposts since October's monthly report. We started on refinancing our mortgage at a lower interest rate, but the transaction is not yet complete.
 
The Australian Dollar fell from USD 0.6894 to USD 0.6764. The MSCI World Index rose 2.48% and the S&P 500 3.63%. The ASX 200 gained 3.51%. All these are total returns including dividends. We gained 2.17% in Australian Dollar terms but only 0.25% in US Dollar terms. The target portfolio is expected to have gained 1.53% in Australian Dollar terms and the HFRI hedge fund index is expected to have gained 0.75% in US Dollar terms. So, we out-performed our target portfolio but lagged other benchmarks. Updating the monthly AUD returns chart:

Here is a report on the performance of investments by asset class (futures includes managed futures and futures trading):

Stocks and real estate did well while hedge funds, private equity, and gold did poorly. The largest positive contribution to the rate of return came from large cap Australian stocks and the greatest detractor was gold. The returns reported here are in currency neutral terms.

Things that worked well this month:

• The Unisuper superannuation fund gained more than any other investment in dollar terms.
• Soybeans and Bitcoin were the next best  performers.

What really didn't work:

• Crude oil and gold lost heavily.
• Regal Funds (RF1.AX) fell sharply after it was reported that the firm was under investigation by the regulator, ASIC.

Trading:  The month started with two losing Bitcoin trades but then a big winning trade and we ended the month positive in Bitcoin with a USD 6.1k gain. We also did well in soybeans, shorting four contracts (more than 500 tonnes of soybeans...). The trade is still open and up USD 6.5k. On the other hand, we lost a lot in crude oil, which had six losing trades in a row and more than cancelled out the gains in soybeans.

Using a narrower definition including only futures and CFDs we made 3.55% on capital used in trading or USD 6.5k. Including ETFs we lost just 0.01% or AUD 46. Using the narrow definition, we are catching up to last year's returns. This graph shows cumulative trading gains using the narrower definition year to date:

I think I should increase the risk allocations to soybeans and palladium to USD 5,000 each from USD 2,500 and AUD 1,250 currently. These would be roughly the allocations suggested by the portfolio optimization given current allocations to Bitcoin and oil (USD 3,670 and 2,500). Risk allocation is the maximum potential loss on a single trade.

We moved further towards our new long-run asset allocation.

Futures, bonds, and gold fell and all other asset classes increased their shares.

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 rebought 100,000 shares of Domacom (DCL.AX).
• I bought 10,000 shares of Regal Funds (RF1.AX) after the price fell sharply following an ASIC investigation of the firm.
• USD 100k of bonds (Virgin Australia & Viacom) matured. I bought USD 25k of Dell,  16k of Nustar, and 25k of Tupperware bonds. So our direct exposure to corporate bonds fell by USD 34k.
• I transferred AUD 45k to my Colonial First State superannuation account, investing in the Conservative Fund.
• I bought around AUD 43k and GBP 7k, selling US dollars.
• I bought 750 shares of 3i.

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.

October 2020 Report

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

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

 

Things that worked well this month:

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

What really didn't work:

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

The investment performance statistics for the last five years are:

 

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

 

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

 

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

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

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.
  

June 2019 Report

Because the financial year has just ended in Australia, this report has more estimated figures than normal. June was another positive month with big wins in Bitcoin and gold. In June the Australian Dollar rose from USD 0.6930 to USD 0.7012. The MSCI World Index rose 6.59% and the S&P 500 7.05%. The ASX 200 rose 3.80%. All these are total returns including dividends. We gained 1.39% in Australian Dollar terms and 2.59% in US Dollar terms. The target portfolio gained 2.36% in Australian Dollar terms and the HFRI hedge fund index gained 2.60% in US Dollar terms. So, we under-performed all benchmarks apart from HFRI. On the other hand, all months since the end of November have had positive returns in Australian Dollar terms:


Here is a report on the performance of investments by asset class (futures includes managed futures and trading):

Gold was the best performing asset class gaining 12%. The worst asset class was Australian small cap, losing 4%. The largest contributions to the rate of return came from futures followed by bonds. The Australian Dollar return is lower than the 2.02% reported here because of foreign currency losses due to the rise in the Australian Dollar over the month.

Things that worked very well this month:

• Trading Bitcoin. Trading profits for this month were greater than for all of 2018. 
• Gold.

What really didn't work:

• Tribeca Global Resources and Cadence Capital. These are now two of my three worst investments in dollar terms. Both of these are trading a lot below NAV. Tribeca is actually doing fine but investors have sold it perhaps because of a misleading report from Morningstar.

Trading income was USD 21,451 for the month, which is three times larger than any previous monthly total. The rate of return on cash in trading accounts was 13.88%.

We moved towards our new long-run asset allocation * as we began to shift out of bonds and moved the first money that orginally came from Chocolateland into our Australian bank account. Gold futures, and cash all increased. As predicted, last month was "peak bonds".

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

• USD 130k of corporate bonds matured (Cigna) or we sold them after early redemptions were announced (CNO, HCA) and we bought USD 103k of USD bonds (Genworth, Goodyear, Xerox, and Avon Products). We also sold 2,000 CBAPH Commonwealth Bank hybrid securities.
• We traded successfully, as discussed above.
• I bought 5,000 shares of the IAU gold ETF. 
• We bought 66,126 shares in Domacom (DCL.AX), a startup company that is enabling fractional ownership of residential property.
• I bought another 4,734 shares in Oceania Capital.

* Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds. We currently don't have any leveraged funds.