We would like to provide you with an overview of how we will
be providing you with the annual reports for your clients.
Annual Investor Statements and Annual Tax reports
This year we will be providing clients with two reports; an
Annual Investor Statement and an Annual Tax Report for the 18/19 Financial
Annual Investor Statements will be provided prior to the end
of September 2019.
The target date for dispatch of the Annual Tax Reports is
also the end of September 2019.
Meeting regulatory obligations
Powerwrap, as the Responsible Entity of the Managed
Investment Scheme through which investor accounts are offered, must provide
investors with Annual Investor Statements by the end of September each year.
In previous years, Powerwrap has combined this statement
with the clients’ Tax Report, meaning one report was issued covering both.
In a number of cases, at the end of September Powerwrap was
still waiting on distribution and tax component information from some fund
managers in order to run the Tax Reports. This meant a draft report was issued
in order to meet the September deadline, with another, final report being
issued once all the relevant data had been received.
In order to streamline this process for everybody, and to
minimise the number of draft reports being issued, this year we will be
splitting out the reports into two:
Annual Investor Statements will be provided by the end of September.
The target issue date for Tax Reports is also the end of September but in the event all relevant information has not been received some reports may be generated after this date.
We will provide further information and updates as we
Please do not hesitate to let your Relationship manager if you need any further information or detail.
Each month we give our readers a little insight into a Powerwrap team member by asking them ten questions about their role, life and personality. This issue we speak to Shareen Devi from the Powerwrap Relationship Management team.
Name: Shareen Devi
Company Role: Relationship Manager
What does your role at Powerwrap entail?
Managing client and business partner relationships, by using data to look for trends and problems, and analyse communications, contracts, and negotiations.
Choose your Mr. Men to describe your work personality?
Are you more of a hunter or a gatherer?
I would say a bit of both, you need a balance in Financial Services.
What nickname do you prefer to be called?
I do not really have a nickname as such but some people call me Devi.
The biggest achievement to date – personal or professional?
Personal achievement – My two beautiful kids and a wonderful husband.
Professional achievement – Working overseas, managing several teams overseas, reporting to multiple Heads of business.
What do you like most about Powerwrap?
The team, the people in it and the energy the business is driven by.
What were you like in high school?
Believe it or not I was very shy, quiet and timid.
These ‘Meet the Manager Luncheons’ are hosted by Powerwrap as part of the Step Ahead Program. We provide a open forum that allow fund managers the opportunity to meet and discuss their products or macro or micro issues with Powerwrap’s Dealer Group clients.
Navis Capital & Powerwrap – Private Equity Meet the Manager Event
Lessons learned in Asia’s private & listed equity markets. Why investors struggle to get a fair share of the wealth that is being created
Speaker – Hugh Dyus Please join us for lunch on Wednesday August 14 at 12pm Bottega Restaurant – Email firstname.lastname@example.org to register.
2019 Adviser Conference
Three keynote speakers will talk about infrastructure, Australian Ethical Income and Australian Micro
Join us for lunch – Thursday 5 September 12:15pm for 12:30pm start – 2pm. Venue – The George on Collins Lower Ground 162 Collins Street – RSVP here
IML and Loomis Sayles Adviser Roadshow – September 2019
Please join us for a lunch presentation and update from Anton Tagliaferro and Daniel Moore from IML as well as Lee Rosenbaum, Portfolio Manager of the Loomis Sayles Global Equity Fund.
Australian investors understand the case for including domestic small and mid cap (SMID) companies in their portfolios and have typically benefited from these allocations. This is however, at odds with their more sparing allocations to global SMID, leaving them underweight this non-trivial USD $13 trillion asset class (approximately 40x the size of the Australian SMID market).
Whilst it is understandable from a behavioural perspective that investors naturally gravitate toward large and well-known foreign companies when investing offshore, Fairlight believes that there is a compelling case for also including an allocation to Global SMID for several key reasons:
Global small outperforms global large
Long-term studies provide a wealth of evidence to support the claim that globally, smaller companies outperform their larger counterparts. From 1927 through 2015 in the U.S., the return premium earnt by investing in small cap companies relative to large cap companies was 3.3% (Andrew Berkin, 2016). Similarly, an analysis of fifteen European markets found an average return premium of 2.4% to small companies over the period 1982-2014 (Stanley Black, 2015).
The small company return premium is intuitive as smaller companies are able to grow faster and have a longer runway to compound growth. Less sell-side coverage means that smaller companies exhibit greater mispricing offering further opportunities to outperform. The return premium may also be compensative for lower liquidity and less diversified business models.
The probability of small company outperformance increases steadily with investor time horizon. Figure 1 shows that for long-term investors, the probability of small company outperformance has historically approached 100%.
An allocation to SMID improves the risk/return characteristics of global equities
Diversification is famously the one free lunch in finance and investors can benefit from the imperfect correlation of small and large caps. The reason for this imperfect correlation is because returns generated by large cap stocks are substantially driven by common global factors, while in contrast, returns from small cap stocks are primarily driven by local and idiosyncratic factors.
Whilst small companies are modestly more volatile than large ones in isolation, a blend of global large and global small companies does not necessarily have to be more volatile than a portfolio of global large companies because of the benefits of diversification (Figure 2 uses a large/SMID ratio of 75/25%). This allows investors to earn some of the historic return premium associated with smaller companies, without necessarily taking on additional risk. Restated in finance theory terms – the addition of global SMID moves the efficient frontier of the portfolio upwards.
The absolute risk characteristics of global SMID are attractive relative to Australian equities
The ultimate barometer of the risk characteristics of an asset class was the realised performance during the 2008 financial crisis. During this difficult period, global SMID exhibited better risk control for unhedged Australian investors than both Australian large cap and Australian small cap equities (see Figure 3). This relative defensiveness comes from the tendency of the Australian dollar to depreciate relative to other developed world currencies in periods of economic stress, providing a buffer to unhedged AUD returns.
For Australian investors adding a portfolio allocation to global SMID can increase portfolio expected returns without a commensurate increase in risk. The Fairlight Global Small and Mid Cap Fund provides exposure to a portfolio of 30-40 high-quality global SMID companies selected with valuation discipline.
If you are someone who scouts the outer perimeter of the traditional investment landscape for new growth areas you will no doubt be familiar with digital currencies such as Bitcoin and Ethereum and the incredible opportunity they have offered savvy investors in recent years. However, unless you have been following these markets closely you may be forgiven for thinking that the “bubble” has burst, and the space no longer represents longer term value. You would be mistaken.
Digital currencies came to the attention of the mainstream
investment community back in late 2017 when Bitcoin (and others) went on a
parabolic move to $20,000 USD; a move that started at $400 USD back in
2016. The Fear of Missing Out, or FOMO
as we call it, saw many buying at or close to the top and swiftly losing money
as the market dumped, as parabolic markets do, all the way back to $3000 USD.
The “Death of Bitcoin” was splattered across the headlines and comparisons to
Tulip Mania and The South Sea bubble made for eagerly digested headlines but
were far from the truth. You see bubbles
burst by their very nature, they inflate, they burst and then they disappear
often quicker than they appeared. What you
may not know is that in Bitcoin’s 10-year history the flagship digital currency
has seen four such dramatic corrections (in excess of 80%) following parabolic
moves; yet each time it has bounced back to trade on to significant new
all-time highs, at multiples. In fact, if you remove the noise and simply strip
Bitcoin back to it’s financial year lows alone; since inception it has quietly
been achieving an average annual compounding growth rate of 165%. Because, you see Bitcoin is not in a bubble,
rather it has, as a result of its enormous potential, been experiencing “hype
cycles”. The term, originally coined by the research and advisory firm, Gartner
refers to a phenomenon whereby high growth is matched by high volatility and
even higher expectations, leading to periods of apparent overvaluation or
hype-cycles until eventually the technology is globally ubiquitous. Without scratching the surface, it is a
defensible position to simply take the headlines at face value; but dig a
little deeper and you find gold, digital gold!
The good news for investors is that the team at Cloudbreak Asset Management (CBAM) believe that not only has the bottom of the market been reached in this current cycle but the next big run is slowly starting to take shape and we expect this run to exceed the last in magnitude.
The even better news is that research shows a significant
diversification benefit to including a small allocation of digital currencies
in traditional portfolios, without any significant increase in risk. Digital
assets or cryptocurrencies as they are often referred to are non-correlated with
other assets classes. Better still, they
are non-correlated AND exhibit asymmetric returns over the longer term. The
table below demonstrates how an allocation of just 5% Bitcoin in a standard Global
60/40 portfolio over a five-year period dramatically improves that portfolio’s
July 2014 – June
July 2014 – June
Annual Stand. Dev.
The research clearly demonstrates that a small allocation in
digital assets (in this case Bitcoin) within the context of a standard global
60/40 portfolio would have provided a more than doubling of annualised return over
the period without any significant increase in volatility. The research also
shows an impressive uptick in sharpe ratio, representing a strong improvement
in risk-adjusted returns. It pays to
keep in mind that this five-year period also included both the 2014/15 and 2018
bear markets. The true beauty of a history written in numbers is the
objectivity it provides. It is of little
consequence if you are a “bitcoin maximalist” or a “no-coiner”, the numbers speak
for themselves and the story they tell is a compelling one.
Granted, the logistics around purchasing and safely storing digital currencies present significant hurdles to most. As does understanding and unpacking the determinants of value in this nascent asset class. And that is where professionally managed Funds like the Cloudbreak Digital Opportunities Fund are providing real value to investors by simplifying access to the digital currency markets via a familiar and secure vehicle.
The Investment Manager of the Fund, CBAM consists of traditional financial
markets traders/analysts and blockchain and cryptocurrency global leaders and
is perfectly positioned to assist you in obtaining exposure to the digital
asset space. Our message to you, is that
if you do not currently have any exposure to this space then it is time to “get
off zero”. History paints the picture, we offer the vehicle but it is only you
that can take action. Please feel free to reach-out to find out more and join
us on this exciting journey at cloudbreakassets.com
CBAM is a Corporate Authorised Representative of AFSL 505011. The
Fund’s Trustee and Administrator is Boutique Capital (ACN 621 697 621) and the
Fund itself is open to sophisticated investors only.
Investment Objective and Investment Strategy To actively manage a portfolio of credit instruments and deliver returns that are uncorrelated to equity markets. Targeted portfolio construction is to hold assets with a short credit duration and high running yield to ameliorate periods when risky assets sell-off. Mutual manages interest rate risk by predominately investing in assets that reset their reference rate every 30 or 90 days.
Performance The Mutual High Yield Fund (the “Fund”) delivered another strong monthly return, recording 1.03% net for July. The six-monthly net return was 3.88%, relative to the benchmark of 0.91%. The Fund benefits income orientated investors as the majority of the returns are delivered via quarterly unfranked distributions (or running yield). Continuing the theme from prior months, Investors are still “hunting for yield” with little consideration of risks. An example is the listed interest rate security, Ramsay health Care (ticker: RHCPA). This bond trades at around $109.00, but may be called at the next payment date in October 2019 at $100 plus accrued of ~$2.30. Accordingly, Investors currently buying this security are risking $7.00 of capital.
Notwithstanding the recent rally in risky assets, on balance it is likely to continue, which owes to low yield on offer from term deposits and government bonds. Recently the Australian government issued a 10-year government bond at 1.09% setting a new record low. The sharp fall in bond yields over 2019 has increasingly resulted in the phenomenon of negative yielding debt (mainly in Europe), meaning Investors are paying an institution to hold their bonds.
According to Bloomberg, around $13 trillion of global bonds trade with a negative yield. Europe are witnessing highly rated corporate debt trading with negative yields, including Nestle, McDonalds, Apple and AT&T. Amazingly, as the negative yields in Europe push investors into riskier assets, the 2.05% yield on Greece 10-year government bonds is only 16bps higher than the 10-year US government bond rate.
Fund Strategy/Outlook The Fund employs a relative value strategy to identify undervalued assets. Since the inception of the Fund we continue to view great relative value in Residential Mortgage Backed Securities (“RMBS”). This proved correct in July with most of the outperformance attributable to the tightening credit spreads of the Fund’s holdings of RMBS. While RMBS credit spreads may have tightened in July, they still represent great relative value with BBB rated RMBS bonds trading at BBSW + 390bps while 5- year major bank subordinated bonds, also rated BBB trade at around BBSW + 185 bps.
Looking forward, the Fund continues to review a number of attractive investment opportunities with the objective to meet the Fund’s benchmark over a rolling 12-month period.