Welcome to the MacroBusiness Fund

Some of you will already know but let’s make it official. The MacroBusiness Fund is open for business. This is the culmination of a decade long dream for some at MB so congratulations all around.

Let’s begin with a description of what the fund is offering and how. There are six funds operating through the Linear platform using the world’s largest bank, J.P. Morgan as custodian. The fund is operated by Nucleus Wealth, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd (ABN 45 161 731 479) – AFS Licence No. 436298.

We have a considerable, experienced investment team assessing investment opportunities both at an asset allocation and at a stock selection level:

  • Damien Klassen: Chief Investment Officer
  • David Llewellyn-Smith: Chief Strategist
  • Leith van Onselen, Chief Economist

Plus a global team of analysts examining companies.

These are not hedge funds. They are core investment funds that invest in Cash, Bonds, Australian Shares and International Shares, the idea being that they can form the core or nucleus of your investments and then you can invest in other assets (e.g. small caps, your own stock picks, hedge funds etc.) around these funds if you wish.

We have designed these funds to cut out your need for a financial planner who will charge a fortune for doing portfolio allocations, perhaps for doing very little for the privilege.  We bring the group’s extensive macro insights to this task, also something your typical financial planner does not have. The MacroBusiness Fund charges only a 0.64% fee and the administration fee for the platform provider ranges from 0.25% to 0.55% (depending on how much you invest and where). If your needs are more complex and you still require more tailored planning advice then we can provide that too, or work with your current planner. The idea is that you only pay for advice when and if you need it.

There are six funds on offer:

Fund Features

Each is described below:

1. Tactical Growth,  where we make the decision when and what mix to buy of Australian shares, International shares, cash or bonds. ($200k+)

  • There is a higher weighting of growth investments (benchmark of 85% of the total assets of the model);
  • Equities that have a higher susceptibility for volatility (whilst still conforming to the overarching quality and value requirements) will be included in this portfolio.
  • Clients with a lower tolerance for risk can blend this model with other models to achieve a more appropriate risk outcome.

2. Tactical Accumulation, where we make the decision when and what mix to buy of Australian shares, International shares, cash or bonds. ($200k+)

  • This is a conservative portfolio for investors who do not have an income requirement.
  • The Tactical Accumulation Model is a multi asset tactical mix of Australian and International share portfolios, with defensive investments comprised of bonds and cash.
  • There is a low weighting of growth investments (benchmark of 35% of the total assets of the model)
  • Equities found through research to have a higher expected return will be included in this portfolio without regard to whether the return comes from dividends or share price growth (whilst still conforming to the overarching quality and value requirements).
  • Using the tactical asset allocation noted above, this model operates in these asset classes using the ranges listed below.

3. Tactical Income,  where we make the decision when and what mix to buy of Australian shares, International shares, cash or bonds. ($200k+)

  • This is a conservative portfolio for investors who have a preference for income rather than capital gains.
  • The Tactical Income Model is a multi asset tactical mix of Australian and International share portfolios, with defensive investments comprised of bonds and cash.
  • There is a lower weighting of growth investments (benchmark of 20% of the total assets of the model)
  • Equities found through research to have a higher susceptibility for dividends and distributions (whilst still conforming to the overarching quality and value requirements) will be included in this portfolio.
  • Using the tactical asset allocation noted above, this model operates in these asset classes using the ranges listed below.

4. Tactical Foundation,  where we make the decision when and what mix to buy of Australian shares, International shares, cash or bonds. ($35k+)

  • The Tactical ‘Foundation’ model aims to provide investors with an introduction to the benefits of individual share ownership through a separately managed account, whilst still ensuring investors maintain a reasonable share parcel size.
  • This model achieves this through an individual Australian share portfolio, a selection of International exchange traded funds, and defensive holdings in bonds and cash.
  • Using the tactical asset allocation described above, this model operates in these asset classes using the ranges listed below.
  • Note that from an asset allocation perspective, the Tactical Foundation Model is a combination of the Growth fund, the Tactical Income fund and the Tactical Accumulation fund.

5. Core Australian Shares.

  • This is a “carve out” of the Australian part of the above portfolios.
  • It is a core holding,  designed to have exposure to the large capitalisation part of the Australian market.
  • Its intended for investors who wish to do their own asset allocation, and can use this fund to get exposure to higher quality and cheaper stocks in the Australian market.
  • Investors have the option to put an ethical overlay over this portfolio
  • The minimum investment is $25k.
  • This fund maintains minimal cash balances – i.e. the tactical funds above will reduce share weights when stock markets are expensive or risky, whereas this fund will remain fully invested. It is up to the investor to manage the asset allocation when buying this fund.

6. Core International Shares

  • This is a “carve out” of the International part of the above portfolios.
  • It is a core holding,  designed to have a broad, diversified exposure to the world’s large capitalisation stocks.
  • Its intended for investors who wish to do their own asset allocation, and can use this fund to get exposure to higher quality and cheaper stocks.
  • Investors have the option to put an ethical overlay over this portfolio.
  • The minimum investment is $70k.
  • This fund maintains minimal cash balances – i.e. the tactical funds above will reduce share weights when stock markets are expensive or risky, whereas this fund will remain fully invested. It is up to the investor to manage the asset allocation when buying this fund.

Next, let’s discuss the investment process underpinning the funds:

We use a mix of Tactical Asset Allocation and Stock Selection Processes to provide investment outcomes for you. The diagram below highlights our investment selection process below:

Both local and international shares are then assessed on both a quality and value basis. These scores are plotted on an ‘investment universe’ map which is then used in the investment selection. The diagram below depicts this process.

The managed investment models are only available through the Linear Managed Accounts investment administration platform. These models are constructed, using the process outlined above, with the aim of providing various targeted objectives.

All positions are currently implemented through physical investments. The investment committee often takes a longer-term view on assets and will choose to gradually build positions with dividends/excess capital rather than actively trading where ever possible.

Third, here’s how these products will be delivered to you:

  • Once you’ve been through our sign-up process, we will allocate you a risk/reward profile and apportion the above funds accordingly. Most clients will receive a “blend” of models. Unless you are interested in the share only options and take care of your own asset allocation.
  • Each model is designed to help investors get access to the benefits and transparency of individual share investing, through the use of a separately managed account. You will always be able to see every security that you hold and it’s live value, contrary to the black box currently on offer in most managed funds:
  • This granular approach offers you unprecedented ethical control. Once you’ve selected your fund mix, at the click of a mouse you can choose an individual ethical overlay for your portfolio. By choosing to exclude stocks your portfolio’s performance will differ from the standard portfolios. For example three categories are shown below:

Finally, where are the funds allocated today?

We see the following for the period ahead:

United States

An ongoing post-GFC recovery is building towards fullish employment. But it is not yet there and structural factors are weighing on wages growth. Inflation is chronically weak and low energy prices will keep it that way Thus we see the Fed tightening only slowly if faster than anybody else. The fiscal agenda has boosted stock valuations to high levels but a weaker USD in recent times has deflated that a little. Corporate margins are at historic highs and Trump agenda need only be modestly successful to given equities a boost.

The pilot fund was very long US equities entering 2017 and booked profits six times over H1. We are currently market weight but will buy any decent pullback.

Europe

The post-European recovery has enjoyed an acceleration this year but will slow next year. The continental economy cannot weather a higher currency. Inflation has rebounded strongly but is fading fast with oil. Unemployment remains huge and monetary tightening will be slow. Fiscal remains mired in the endemic problem of euro politics.

We’ve been long Europe in the pilot fund but have pulled that back now to market weight after booking a good profit. We are currently market weight.

China/Australia

China is set to slow in the next six months, especially in the commodity-intensive property sector. That slowing will be gradual and will not necessitate any further big ticket stimulus beyond the consistent roll out of infrastructure. We give the H2 National Congress a 60% chance of triggering further large scale reform which will slow China even further next year. When it takes growth too low then more stimulus will flow. So on and so forth as China steps down to the 4% range by 2020.

If there is a debt crisis we believe China has the resources to handle it without an outright crash. But it would badly effect all trading partners and still trigger global recession.

Thus we see Australia’s bulk commodity dependence as its Achilles heal. Australian corporate profits have a virtual one-to-one relationship with the terms of trade. As the latter falls with bulk commodity prices so will the former.  That, in turn, threatens a ribald housing bubble.

Monetary policy is close to exhaustion. We see no rate hikes on the horizon and likely cuts as the dwelling boom rolls over in tandem with the terms of trade. Fiscal policy is constrained and the sovereign rating is in imminent peril.

We are very underweight Australian equities.

Equity/bonds/cash split

Given high valuations and recent monetary tightening we are currently a little underweight equities and bonds and have raised cash. We do not buy into the current round of global central bank excitement about reflation but accept that markets themselves may be overheated and the target of tightening. If the shakeout gets moving we will buy more bonds and, assuming there is a correction, more equities.

So, how do you join? Right now we are on-boarding the 1,400 or so investors that pre-registered for the fund. This will take us a week or two. If you are keen to invest then register today and we’ll get in touch very soon:

Alternatively, if would like to meet us in person, and get our full take on the evolving investment universe, we’re launching a national rock’n’roll thunder tour in September on the following dates:

Adelaide Thurs 7th September
Melbourne Wed 13th September
Brisbane Tues 12th September
Sydney Thurs 21st September
Canberra Tues 26th September
Melbourne Thurs 28th September
Perth Tues 3rd October
Hobart? Thurs 12th October

There is $50 cover charge but it’s free for MB subscribers or fundies.

Thanks for your interest.

Comments

  1. I’m pretty disappointed with the Australian share to international share ratio in most of the tactical funds given what the focus of these funds is supposed to be. Australia is 5% of the world equity market, I think the balance of effort is off (international ETFs only?) and it looks more like a vanilla super fund than thoughtful selection given our negative outlook. (Acknowledge that there is a range of allocation possibilities, that some Australian companies have purely international exposure, in advance of rebuttals)

    • Doesn’t it say there are direct international shares (e.g.: Alphabet; Cisco etc)?

      I’m curious to know how many shares might be held at a time for the Tactical Allocations?

    • boomengineeringMEMBER

      I thought there may have been some gold in the mix and less Australia in the Tactical Foundation model.

      • DingwallMEMBER

        Perhaps physical gold may create some difficulties for costs/volumes or something but I assumed Aus equites and int’l equites would cover listed gold miners and gold ETF’s

    • You can get whatever mix of Aus/Int you’re comfortable with.

      In the tactical funds, Aus allocation is bigger than MSCI because we live here so it’s part of forex risk management. Nonetheless, the allocation is heavily skewed to offshore earners.

      The minimum entries for stock picked international reflect the amount of dough that we need to provide a risk balanced spread of stocks. Sub $200k balances would result in portfolios carrying such low numbers of shares on particular holdings that it makes no sense. Hence ETFs for foundation.

      • The Traveling Wilbur

        Well done for:
        A) getting the product over the line and out the door. Great achievement.
        B) hanging in there against all the whinning and hole pokers who, I see from this page, have made another appearance today.
        C) doing something very unusual and once having identified a problem, got off your collective-asses and actually done something about it. Doesn’t happen often enough in this country.

        Good luck, congratulations and don’t drink too much at the launch party!

  2. DarkMatterMEMBER

    Is there an option for people who think that money is just a concept (and an ill considered one at that)?

  3. I’d consider pushing my super over to this fund, but I guess I would need to create a SMSF first? Any thoughts regarding provision of support to do this or is it something I could do myself quite easily?

    • sydboy007MEMBER

      i use esuperfund for my SMSF. They only provide auditing services. Investment choices are left to myself. About the only “restriction” they have is to set up an ANZ or CBA account that all money into the fund goes to first as they get all the transactions via file to pre populate at tax time. they have a couple of brokers they can also do that with but you’re free to use any broker you like as long as happy with the extra work you’ll be required to do.

      I’d recommend setting up a corporate trustee as it makes things a bit easier if say you get married and want to bring your partners super over into the fund as well.

    • Right now you will need an SMSF for super. But, the platform provider is working on a solution that will allow you to open an account as super without having an SMSF. They’re targeting year end.

  4. Adelaide, first cab off the rank… assuming you take questions from the audience, the guy asking for your forecast on the local property market will be me 😉

    Good luck with the fund.

  5. GunnamattaMEMBER

    Am I right that the Melbourne night is the eve of the Grand Final holiday?

    Where is it? I will try and make it up from Geetroit

    Best of luck with the fund!

    • Currently assessing options for the 2nd Melbourne event. It will be ‘in the grid’ somewhere, near parking and public transport. (and a bar!)

  6. Will the funds be used to support a political party or a political figure in any way?

    I really like the “No War” option. Best wishes for the fund!

  7. boomengineeringMEMBER

    Pity the need for higher cost allocations than most MB members could afford, I suppose they could always do a crowd funding of some sort as there would be a much larger percentage of these people.

    • Yow! $70K is a tad steep… When I’ll have that money (and I will) – I’ll consider it – will also give the fund time to prove itself.

  8. Yes, more $ than I expected is needed for entry. Pooling of funds that are then jointly invested would allow alot more people to participate.

    • I can see why they didnt. Pooling requires a daily unit accounting and pricing system run on computers supported by staff – expensive for a startup. Unit pricing stuffups are also expensive. This way each persons funds are separate but keeping like account exposures and performance aligned will be the challenge. Especially if one stock in a category performs extraordinarily well or badly and not everyone is in it, for example stock tightly held so you hold something else similar in the same category. Hopefully its a problem associated with fund success.

  9. SoMPLSBoyMEMBER

    Congrats on the launch! Hope you get the flows and aum required to make it all viable. Perhaps consider a systematic (monthly) investment option for after-tax dollars; these types of programs are virtually absent in the local marketplace. Wealth building outside of super or property is largely ignored.

  10. DingwallMEMBER

    If you start in the Foundation Fund and build up to the 200k is it an automatic transition across to the Tactical Fund and would a transfer end up incurring a fee?

  11. Basic question here – if the Shares Only option remains fully invested at all times, and you are responsaible for asset allocation – who decides what shares to sell if you want to move a bit of money towards cash/bonds? Or do you just lower your overall allocation by 5% and the fund sells 5% of every share you own?

    • No fees. You can exit with the assets or if you want it in cash then we’ll need a few days to liquidate without you taking a hit on trading fees. If it’s urgent you’ll pay $70 per stock. If we have a few days it’ll be $3.

  12. ThePensumMEMBER

    didn’t realize there was that many wealthy people on this blog… 200k, 35k?! I should pay attention to members comments more 🙂
    Although I do assume this fund is being trotted out beyond just this website?

  13. Congrats on finally getting it up! I had hoped the $70k international bit would be active + bonds rather than fully invested come what may…. or am I reading it wrong? Is there another way I’ve missed for ~$70-100k?

    Edit, I’m paid up. Can I be re-membered please.

  14. Well wishes to all.

    Currently I’m invested in property which has delivered excellent returns. Wishing same to the Macrobusiness Fund.

  15. Tactical Growth, you have a max of 30% for cash and td’s and 35% for bonds, yet aTotal Max at 85%?
    Thought total max might be 30 plus 30 plus 35 = 95?
    Not a big one

    • 8mill, good pickup there. I am also interested to know how 30 + 35 end up being 85%. Prob just a typo.

    • The Traveling Wilbur

      Short version of answer: you missed the Min column…

      Longer version: the numbers you tried adding you can’t – not with that interpretation, but you can take the value of 100% that anything can possibly be as a maximum and substract its pair’s Total min listed (assuming the sum of all the component maxes is 100% or more). So 100 – 15 is 85 and 100 – 0 is 100.

      Edit: omitted the word “pair’s” by accident originally.

  16. Are the allocation models fixed?

    For example;
    Why would you have a typical allocation to cash; should it be up to X%? I don’t want to pay 1.0% for you to put in an account/TD @ 1.5-2.5%. I understand that you will have rotate/time the market but I would expect the aim is to be fully invested?

    If you can’t find a place/opportunities for the money then give the cash back; this might be a deal breaker for me investing in the tactical foundation.

    • Just got the allocation’s for foundation….the stock allocations look terrible…. ASX top 20 Banks/Iron ore/property groups everything MB thinks are in bubble along with international ETF’s that you can buy yourself. Move on nothing cutting edge here unless you have 200k+

      Go buy your own bundle of 4/5 ETF’s (asx200/bonds,internation shares etc) to keep trading costs down and you’ll probably outperform.

      • Damien KlassenMEMBER

        Thanks for the vote of confidence!
        You are right that the $200k portfolios are different to the Foundation portfolio.

        The Foundation portfolio is an asset allocation portfolio that uses ETFs to do the asset allocation – no arguments there.

        For the Australian exposure, instead of using an ETF (which will have banks and resources at full weight) we have used an ASX 20 and reweighted it to be underweight (but not zero-weight) banks and resources. Yes, MB doesn’t like banks or resources at current prices, and so we are very underweight Australia. We are also underweight banks and resources within Australia. But the portfolio is a core holding, not a hedge fund and so we need to construct a portfolio that is diversified which means that it still has some banks and resources.

        I take your point that you can do it all yourself with ETFs – there is an article coming out tomorrow with that exact theme.

        We’ll also have a look at the wording for the foundation model to see if we can explain some of this better before investors apply.

      • Thank for the response. If this was a superfund you’d probably get my money at least I’d know what my exact investments are rather than a blackhole of my existing.

        For amateur investors like myself that aren’t high net worth individuals the foundation fund doesn’t make sense to me. Over half my holdings are ETF’s as statistically you will over-perform bonds/cash over a long enough period. I really think you have missed you target audience and most individuals that read this forum. They want a sharp, low cost, focused investment not a generic superfund structure.

        As for the tactical funds; you’d be down right stupid to put all your money into a single contrarian (dubious if it really is one) fund like this. You’d probably only be comfortable allocating 20-30% of you portfolio. That means your target audience is ‘sophisticated investors’ with over a 1-2 mil. Is this really your reader base?

        I pay 200 a year for this subscription to know which sectors of the economy are no-go zones over the medium term to guide my investments; all I need for now. For a long time reader of MB this is fund structure is a big thumbs down from me.

      • Damien KlassenMEMBER

        Thanks for your detailed feedback.
        We want to run core strategies that in investors can put a significant part of their holdings into and still sleep at night.
        It sounds like you may be looking for a low-cost hedge fund type product?
        We’ll have another look at how we describe our funds to avoid the confusion in future. We have a superannuation option coming, hopefully by the end of the year, that may be more appealing for you.

      • I can’t sleep at night because I know Australia is F#$%ed. I just want to make money (or keep it) when it does all go down! So yes a high Alpha fund based on themes described in this blog is what I personally want.

        Look forward to the Superfund release; the open nature of investment is a real appeal. I think you should have focused on this first.

  17. I really like the idea behind the alternative approaches via the alternative models – that’s quite smart.

  18. Well done guys, I imagine the amount of work to get this up and running would have been huge. The other thing about it is that you are really putting your balls and reputation on the line with this one. I’m in, just gotta set up the SMSF and then wait for the dollar to get back to what I cashed out on before I put more in. Be a good trial period to see how it all goes.

  19. stagmalMEMBER

    i’m going to wait on the sidelines for a bit before jumping in, but am definitely interested and definitely willing to invest if this fund proves itself, which i think it will.

  20. Even StevenMEMBER

    Congratulations on getting the MB Fund up and running. I have dealt previously with some of the people at Linear, and expect it will be a good platform on which to base your operations.

    A few things:
    – Nucleus Wealth website refers to 0.65% p.a. fee whereas your table above says 0.64%.
    – Suggest photos of key individuals (David, Leith etc) on website are replaced with professional photos.
    – Suggest additional clarity around the performance objective and benchmark for each of the portfolios. If a composite benchmark, what are the specific benchmarks being used for each asset class (e.g. MSCI World ex-Aus divs reinvested, ASX200 Accum etc)

    For people who want to see immediate short term outperformance by MB Fund before getting in, temper your expectations. In my view, the nature of MB’s strategy (contrarian) may mean lengthy periods of underperformance, followed by sharp periods of outperformance as the ‘bets’ come good. I’m sure David/Leith/Damian can comment in more detail on their expectations.