May Fund Performance

How much Nvidia do you hold?

Hi Everyone,

See below month end fund performance data ranked by monthly performance.12mth data ranked by:

• Best performing funds highlighted in grey

• Worst performing funds highlighted in yellow

HOUSEKEEPING

1. If this forwarded to you, feel free to respond to the Substack email or just send a sign up request on mrquick@substack.com

2. If you are receiving this via email, I suggest clicking the link and reading directly on Substack. The email formatting does not translate well and the information may appear as clipped or truncated in your inbox due to the size and length of the Substack post.

Fixed Interest

• CS finished merging with UBS 12 months ago, post the AT1 blow-up. And since then, global hybrids represent among the best performing securities in fixed income land. PIMCO Capital Securities reflective of this bounce.

• Fall back position for lots of “income” funds is base rates, reflected in the consistency of returns. Cash plus margin returns are super consistent, so why bother with equities to get your 7-9% long-term return?

  • There is actually a point to equities – more commentary in the thoughts section later on.

FI LICs

• Returns are highly influenced by the share price movement rather than any underlying performance.

• Lots of these trading above par now, better opportunities in the above table exists. This makes a lot of sense when you can buy something at 90c in the dollar. Less so when you are forced to be something at 102c in the dollar!

Domestic Large Cap

• A bit lacklustre as we missed on the excitement of Nvidia here

• Markets down, value-ish names doing well.

• Interesting to see some funds try and replicate a “Quality” filter that has been so successful in global equity markets

Domestic Mid/Small Cap

• The small/mid bounce continues, many funds still well ahead of benchmarks and reflects the benefits of active in this sector

Domestic Micro-Cap

• That Pengana fund has been very punchy of late

• June tax loss selling should hit this part of the market this month

International Equities

• I don’t think even Caledonia posted a number that big in any given month as what Frazis achieved – bouncing strongly now but still a bit to go to catch up to ATH

• Global Small/Mids doing very well last month, the market dispersion across mark caps continues to narrow

Infra + REITS

• News of Aussie office buildings transacting at discounts making it to front page of the AFR, but what isn’t priced in already? AREITs swimming along nicely over the last 12 months.

Other

• Leverage long/short mostly did well last month while CTAs and hedge funds suffered.

• CTAs looking attractive in current environment – truly an alternative cash plus style investment. Higher base rates means that the poor returns over the last 10 year is not necessarily reflective of future performance.

GICS Sectors

• Return of the rate sensitives as tech, utilities, and AREITs all did quite well last month. Coincidentally also the best performing sectors over the last 12 months.

• Healthcare still not doing its thing, earnings haven’t bounced post-covid and inflation smashing earnings.

• Discretionary worries me, that last 12 months of +21% returns is questionable whether it continues. Will inflation and rates finally kill the consumer?

Bonus Round

• Aus BTC ETF announced, are you going to allocate? Or is it too high?

• ETH with a massive bounce in expectation of US ETF.

Thoughts of the month

Taken for a Joye ride - Part 9

As a reminder, our favourite bearish commenter let everyone know the S&P500 was set up for a “terrible” decade. This is despite there being enough empirical evidence to show that the range of outcomes investing in equities is much higher than investing in fixed income markets. And risk disaggregates over time.

We are going to track whether the S&P500 and ASX200 will outperform his funds over the next 2 years, let alone the next decade.

From 13 Sep 2023 to 31 May 2024:

I still wonder why he said S&P500 in that interview rather than ASX200? Could have made it much easier for himself.

Momentum (the free lunch)

Winners tend to keep on winning, this is the one free lunch in markets and plenty of evidence to back this trend.

And boy have the winners kept on winning,

Zigging while markets Zag

May was a decent month for markets and felt like it was one of the least volatile in recent memory. This month however has been an unusual time for investors.

I proxy the market’s appetite for risk via Bitcoin, I believe it is a cumulative value for how much risk investors are willing to take on at any given time. The appetite for risk feels like it is slowly falling away, ASX200, small caps and crypto assets (which represent the ultimate risk on assets) continue to slowly bleed lower, while the S&P500 pushes on, almost completely due to Nvidia.

The question becomes, who is right in this situation? Do you fight the tide or do you take an active tilt against the momentum.

Nvidia is driving the above table, which means the question really is, how actively do you bet against Nvidia by not holding or do you simply how the benchmark amount?

I’m just waiting for the next rate cut to come

The scariest thing this week was when RBA governor Michelle Bullock stated that a rate hike was considered, but a rate cut was not.

Interest rates have increased to a level where we’ve simply mean-reverted after a period of abnormal interest rates. Sure the inverted yield curve is a bit weird but the absolute level of interest rates is not out of the ordinary. And inflation doesn’t seem to be going anywhere, so rates remain very sticky.

One must consider the interest rate environment and what kind of outcomes you underwrite in your portfolio.

There are many investment ideas and companies in the market today looking for capital that are still implicitly or explicitly reliant on the assumption that rates will go down soon.

But can you make money if interest rates stay the same as today for the next 10 years?

Sure there some areas of forced selling (AREITs divesting non-core assets) which represent interesting opportunities but if anyone suggests lower rates are coming as a part of your expected return, then run as far as you can because as the above chart on momentum shows, the previous winners are likely future winners.

Thanks

Well done for making it this far and it pleases me you are reading this sentence. I thank you for reading the above and I hope it has provoked some thoughts.

Formalities

If you are thinking about starting a new fund, are a new manager or an existing manager, an analyst, or would like your vehicle to be part of the list I track, I’m always keen to chat.

Likewise, if you just want to have a good old chat, I’m always free to do that too :)

---

While I take care to make sure data is correct, I do not make any guarantees as to the complete accuracy of these figures. The data and comments above are simply my observations and not financial advice.