Mountains in Clouds


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Hall Road Investments #42 (Family Office Sherpa, Index & ESG)

The Sherpa Update

Fund closures – Two Trees, the Pinnacle related Global Macro firm has shut down. Tough to stay up with those return figures in a very volatile market. At one point they had over $300M but will shutter with close to $80M.

Copper Rock. This one from the Ironbark stable, closing its EM strategy after some very convoluted ownership changes.

CFM – closing its Institutional Systematic Diversified fund due to underperformance and size. In its five-year life, the fund delivered -4.2% p.a. since its inception in November 2015 to October end. It has only had one calendar year of positive returns, which was a 6.5% in 2017. It’s down 17% this year.

AMP Capital. Continues its product clean-up with news it will close the sustainable share fund after 19 years. Not a major surprise as the two PMs resigned and the fund itself was only $14M.

Clime Capital – Taking the opportunity to clean house post CEO, Clime is closing down it’s $79M Australian Value Fund after 14 years. The reasons given were a bit strange, they cited the increased volatility brought on by COVID 19, I thought volatility was supposed to bring back the value stock picker? Further reading makes it a bit clearer; they are nowhere near their performance benchmark and unlikely to charge performance fee any time soon.

ASX – froze as they tried to move to a new trading system supplied by Nasdaq. I remember being a stockbroker and having to suck it up when the ASX went down however this time there’s an alternative - Chi-X stayed open so you could still trade single stocks. Unfortunately, there was no liquidity and as ETFs mostly trade on the warrant market supplied by the ASX they were not trading at all.

The ASX is looking to modernise CHESS with blockchain, I don’t have a lot of confidence they can do it following the recent ASX website launch and now this.

Stake – in an unusual step, the broker is launching a service that actually establishes a SMSF. Now, I’m all for buyer beware as you know, but there is an argument that there is no benefit for this cohort to have a SMSF and this may look like a cynical attempt to access the only large amount of cash that younger employees have. As a “free” broker, you know they have some high revenue product ready to go.

Cyber Security – The recent theft via Zoom link for a local hedge fund is a very timely reminder for all entities to stay on top of their treasury risk. Who can approve transfers, how many checks are in place? It also shows that the cheapest option for suppliers is not always the most suitable.

Multi Family Offices – UK based Stanhope Capital and US based FWM Holdings (Forbes Family) are merging to form a $24bn multi family office. There is speculation the amalgamated firm will be looking at acquisitions in Asia.

Supplier Meetings – India Avenue, GQG, Vantage Asset Management, ANZ Private Bank, Corinella, Blackmore Capital, Artpay, FundCount, Mirador, Private Wealth Solutions, Sharesight.

Indexing and ETFs

Tesla – the power of addition to the S&P 500 index. I’m not sure what has changed since the last meeting, S&P in their wisdom have chosen to include this stock in the main index from December 21. As mentioned in a previous newsletter, this further complicates the term “passive” as there will be some massive overweights from sector perspective.

One take on this is the return lost by index investors from the exclusion of Tesla. Rival index manufacturer, Bloomberg, noted on the day it was announced: “The S&P 500's delay in adding Tesla cost it about 100bps vs Russell 1000 this year alone. Further, the SPX trails the Bloomberg 500 Index (which is simply the 500 largest stocks) by 7.6% (26bps ann) over 10yrs (thx to Tesla and many other stocks).”

This is cherry picking slightly by Bloomberg and I’m sure they wouldn’t be shouting as loudly if Tesla dropped significantly but it does show you the importance of index due diligence and benchmarking, even when you think it’s pretty straightforward.

Personalised Indexing – one of my favourite subjects popped up on the radar again with Blackrock paying just over $1bn for tailored index strategy firm, Aperio. This follows Morgan Stanley’s purchase of Eaton Vance that also includes custom index leader Parametric.

As technology and costs improve, the move from co-mingled index strategies such as ETFs and trusts to fully customised SMAs is surely on the horizon for Aussie investors.

As an FYI Aperio is Latin for “to reveal the truth”.

Dimensional – As mentioned a while back, DFA is heading into the ETF market in the US and their first fund listed overnight. This is despite the oft cited rules for using their products and drinking the cool aid. DFA also announced plans to convert six of its tax-managed mutual funds into ETFs.

US ETF Market – the scale of the US ETF market was illustrated following news of a vaccine – the SPDR S&P 500 ETF (SPY), the largest ETF in the world at $320bn, added just shy of $10bn in a single day.

ESG & Philanthropy

Mandate – News that LegalSuper has awarded a $170M mandate to London based ESG EM manager Akiya. The strategy has a focus on stewardship and ESG and is part of the new manager shakeup at the super fund.



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