Mountains in Clouds

Insights

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Hall Road Investments #36 (O-COO/OCIO Index & ESG)

This newsletter was sent to subscribers on the 4th of September.


The Outsourced COO/CIO


Future Fund – I love the FF quarterly update as it gives some great insight into how the smartest people in the room are allocating and provides the much less smart (me) some food for thought, unencumbered by a sales pitch.


They announced a 75% increase in cash holdings which as far as I can see is hardly a ringing endorsement for the current investment environment and may indicate an expectation of potential opportunities in the future. Having said that, they maintained equities and the cash was from the sell down of some illiquid assets - they just don’t see the need to deploy that money yet. If you haven’t read the FFBG investment policy, it’s definitely worth it and this action reflects their long-term return and risk goals.


Insto Sales – I’m very happy not being in insto asset management distribution anymore. I just got a message that that a $1.7bn global equity opportunity I put into the system 1100 days ago was recently funded. I remember the mandate and client well and the amount of work put in, it’s such a long conversion process sometimes.


MLC/IOOF- Can’t see any issues here, the Odd Fellows coming off a shocker from the Royal Commission, stumping up for MLC Wealth and raising a stack of cash. Wouldn’t want to be in the cracks of MLC as a client. NAB will be over the moon with this hospital pass I reckon.


Fund Launch – Challenger is trying to arrest annuity sales decline with the launch of a new product. It’s a Floating Rate lifetime annuity with returns tied to the cash rate.


Concentrated Leaders Fund (CLF) – the $100M LIC has appointed Carrara Capital to manage the assets externally. It’s a weird one as David Sokulsky is the sole owner of Carrara Capital and until recently was the head of investments for CLF and has one client… CLF. I wonder what that tender process was like. For those that are interested in the name, it’s a variety of marble used by Michelangelo.


ESG Funds – ex BNP salesperson Steve Larkin has hit the ground running with his new business 3DP picking up US based SRI/ESG global equities manager Promethos for distribution into Australia and NZ. I had to look up Promethos, half expecting some Latin definition, I’m still not sure but there are a few cool comic book characters with the same name.


Data frustration – the fact that we still have to source data and build a new portfolio when moving from one platform to the other and that platform actually uses the same interface is very frustrating. In this day and age, I can’t believe that client mobility is still such a rarity. I know incumbent wealth managers don’t want to give up revenue but I can’t see how making it difficult for the client going forward is good for reputation and when I look at new platforms, client portability will be on the list.


Amalthea Fund – I was looking at a portfolio holding and saw that they fund had a shocker in the June quarter. One thing I like about John Hempton, he doesn’t try to hide bad performance. If you’re interested, the Amalthea letter to unit holders can be found here, it’s a little old now but worth a read, even just for the cautionary tales.


Collins House – has launched some online diversified portfolios, seems that they have moved from the Clover platform to OpenInvest. I had a look at the PDS, trying to find out more about the actual constituents, benchmarks etc but to no avail. Anyhoo, I looked at the fees and the MER is between 50-75bps, up to 1.25% indirect costs and up to 50bps transaction costs (but not brokerage which is nice).

360 Capital – talk about diversification, have taken a 17% ish stake in Evans Dixon. CEO Tony Pitt is very active at the moment, also taking a slice of Peet Group. Maybe L1 will get a good result from its letter writing program.


Evans Dixon – Following the departure of the main driver, the firm announced it will wind down the Dixon Projects unit and no longer create new real asset investments to sell at high cost to clients. Who would have thought, client interests are potentially worth thinking about first?


Speaking of, the dog’s breakfast that is the URF LIC wrote down the value of its assets again. ASIC has finally pulled the trigger on civil action. Something, something, horse bolted.


Timing the market – I’m a sucker for stats and this is right in my wheelhouse. BoA has released a research report into market timing for US stocks and it’s a great reminder for me any time I’m asked about when to invest. Some cool data:


· If an investor missed out on the 10 best trading days per decade since the 1930s, their returns would total just 17 per cent. Had they stayed in the market; their portfolios would be up 16,166%.

· S&P 500’s best days generally follow its worse days

· It takes an investor roughly 1100 trading days to recoup losses after a bear market. Missing this year’s rally out of bearish territory would worse than usual, as the record-speed slump in late February and early March pre-empted a rapid surge back to historic highs.

VGI – performance fees are great when going your way. To give you some idea of how volatile this can be, VGI performance fees for the first half of 2019 were almost $33M, second half were 100K.


Duopoly – talk that the IOOF purchase of MLC and the great extrication of big banks from wealth will cause a Woolworths/Coles style duopoly for mass wealth management. It’s an interesting point and one worth exploring as the role of the independent financial adviser becomes more important (and expensive).


Indexing and ETFs


E-Sports ETF – I penned an article for the International Family Office Journal earlier this year on engaging the next generation of family members using ETFs. One method of engagement I’ve seen work is finding something they enjoy and relating companies. Van Eck has launched a very niche ETF that invests in game publishers Tencent, Nintendo, Electronic Arts and Activision Blizzard.


I can see the eye roll from here for a lot of CIOs and those that look at this type of investment as too niche. I also see this in a test portfolio for the next gen that up until now probably couldn’t give a crap on the relative merits of GARP vs Value. What a great opportunity to put some money to work in an investment that may actually be of interest to them.


ESG & Philanthropy


Impact Investment – Crestone has mandated Channel Capital distributed Conscious Investment Management. Which, if you can’t tell from the name is an impact investment firm that counts ex Escala CIO Giselle Roux as an adviser and follows an "impact partner model". They partner with charities and similarly minded enterprises to work together to identify investments and assist with the management.


Cheers

Shaun

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