October 2021 fund reports and things we found interesting

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Hi ,

Welcome to our monthly update. Once again all our funds delivered positive returns last month, while the ASX200 delivered -0.1%. Links to the latest fund reports and our annual Melbourne Cup LIC form guide are below.

The overriding debate in financial markets continues to centre around inflation, in particular how long higher inflation levels can last. The consensus now seems to be that it will last a bit longer than previously expected. But there is still very little allowance in market pricing for an extended period of higher inflation. As each month brings with it another inflation “surprise”, most central banks continue to pretend it will all go away soon. Persistent inflation, if that is indeed what we have, is a big deal. Raw materials, wages and general business costs will rise. Eventually (once central banks wake up), so will interest rates. And if inflation continues for several years, taxes are also likely to increase.

If increased inflation is sustained, we will see big changes in investment markets. Put simply, a lot of things that worked well for the past 10-12 years will no longer do so. And many of the investments, stocks and sectors that have been underappreciated and unloved will do much better. If that happens, our funds are pretty well positioned for it.

If you would like to invest with us this month, Affluence Investment Fund applications close on Thursday 25 November. Investments will be effective 1 December, with confirmations emailed about a week after that. Go to our website and click “Invest Now” to apply online or download application or withdrawal forms for all our funds. If you have any questions or want to give us some feedback, reply to this email or give us a call.

Read on to discover some other things we found interesting this month, including carbon credits, the most expensive company with no revenue, a true story about a second hand volleyball and why there are no B batteries.

Regards, and thanks for reading.

Daryl, Greg and the Affluence Team.

Affluence Fund Reports

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Affluence Investment Fund

The Affluence Investment Fund returned 0.8% in October. Since commencing in 2014, returns have averaged 9.3% per annum, including distributions of 6.7% per annum.

At month end, 63% of the portfolio was invested in unlisted funds, 15% in the Affluence LIC Fund, 12% in listed investments, 2% in portfolio hedges and 8% in cash.

October 2021 Fund Report

Affluence LIC Fund

The Affluence LIC Fund returned 1.5% in October. Since commencing in 2016, returns have averaged 14.3% per annum, including quarterly distributions of 7.7% per annum.

The average discount to NTA for the portfolio at the end of the month was 13%. The Fund held investments in 29 LICs (77% of the Fund), 4% in portfolio hedges and 19% in cash.

October 2021 Fund Report

The LIC Form Guide

November is Melbourne Cup month, and you know what that means. Once again, we’ve rummaged through the LIC bargain bin, and we are proud to present our fifth annual form guide for the Affluence LIC Cup.

We reviewed the performance of our 2020 LIC picks, decided which 24 LICs would make the 2021 starting field and nominated our three favourites for the year ahead.

Check out the Form Guide

Affluence Small Company Fund

Our contrarian Fund holds a range of small cap exposures with a distinct value focus. Since commencing in 2016, returns have averaged 11.1% per annum, including distributions of 6.8% per annum.

At the end of October, the Fund held seven unlisted funds (47% of the portfolio), six LICs (16%) and eight ASX listed Small Companies (21%). The balance 16% was cash and hedges.

October 2021 Fund Report

Exclusive access to 25+ talented fund managers

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Around 40% of the Affluence Investment Fund portfolio is invested in underlying funds that are closed to new investors. This means the Fund provides access to a manager set that is impossible to replicate. A further 21% of the portfolio is allocated to funds that are only available to wholesale investors.

With monthly distributions, a focus on investing differently and fees based totally on performance, the Affluence Investment Fund is probably unlike anything else in your investment portfolio.

Learn more about the Fund

Things we found interesting

Chart of the month.

Based on demand projections for carbon credits from McKinsey, the voluntary carbon market could grow to 50 – 100 times current levels by 2050.

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One carbon credit offsets the equivalent of one metric ton of greenhouse gas emissions. Because many companies are struggling to reduce their emissions as quickly as they would like, they purchase carbon credits to offset them. These purchases are facilitated by brokers, who connect corporate buyers (or investors) with project developers. Project developers create carbon offset projects, such as protecting mangroves or reforestation.

We are starting to see dedicated carbon credit investment funds, and several managers we work with are looking to, or have, invested in some form of carbon credits. It has the potential to become a viable and profitable alternative investment class. Learn more here.

Quote of the month.

“I’m very curious and, as you know, I’m paranoid. But, at the same time, I’m an optimist, because you cannot be a real estate developer without being an optimist. The paranoia, I can’t quite describe it to you, but the mixture of those does wonders.”

Sir Frank Lowy

How do you turn a humble delicatessen into Westfield Corporation – once the world’s largest operator of shopping centres? Sir Frank Lowy started in war-torn Europe. He emigrated to Australia and spotted an opportunity to sell good coffee to Italians in immigrant-rich Western Sydney with business partner John Saunders. From there he made his first commercial real estate investment, and the rest is history.

In this interview with Magellan’s Hamish Douglass, 91 year old Sir Frank shares his story. He talks about mistakes he made, the key character traits he thinks are necessary to become a business success, and the importance of remaining paranoid yet optimistic. He is an Australian business icon, and if you have 42 minutes and 22 seconds to spare, it’s well worth a listen.

Sign of the times.

Environmentally friendly electric vehicle maker Rivian went public this month in one of the largest offerings ever. Its market cap of $120 billion is higher than both General Motors and Ford. This is an incredible leap of faith, given that Rivian has no meaningful revenue, versus $131 billion for GM and $135 billion for Ford. Oh, and so far, Rivian only has plans to make utes and SUVs.

By the way, Ford owns a 13% share of the (not yet) carmaker. If you adjust Ford’s value for that, Rivian is valued at two times the rest of Ford. Early reviews for its electric pick-up truck are generally quite positive. But as Elon Musk himself recently said, “There have been hundreds of automotive start-ups, both electric and combustion, but Tesla is [the] only American carmaker to reach high volume production and positive cash flow in [the] past 100 years.”

Sign of the times 2.

This is Wilson. To clarify, Wilson is the volleyball with sticks for hair, not the guy with gloves.

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Wilson got his big break in the movie Cast Away, which was also famous for having Tom Hanks in it. Tom Hanks played Chuck Noland, who was stranded on a desert island for four years after a plane crash. On the island, Noland finds a volleyball and Wilson is born. Throughout the film, Noland continuously speaks to the ball to stay sane, which makes no sense if you think about it, but then what Hollywood movie plot does?

Wilson was recently auctioned by Prop Store. Unfortunately, he is no longer in mint condition. According to Prop Store, “Wilson was placed in water for long periods during filming. Therefore, the overall shape of the ball warped slightly, and the facial detailing became somewhat blurred compared to shots earlier in the film.”

So, how much is Wilson the extremely second hand volleyball worth? Well, it was originally estimated to sell for no more than $100,000. However, it exceeded auction expectations and sold for just under $400,000.

This month in (financial) history.

November 1971. The microprocessor was officially born as Intel introduced the 4004 chip. At 3mm long by 1.5mm wide, it held over 2,000 transistors and had almost as much computational power as the 30-ton ENIAC computer of 1946. Intel acquired the rights to the chip from Busicom of Japan, who saw no use for it. Busicom sold its entire interest to Intel for $60,000, in what you would have to say was one of the poorer business decisions in history.

November 1923. With hyperinflation raging in Germany, the value of the German mark imploded. It took 4.2 trillion marks to buy one dollar’s worth of goods. Just over three years earlier, it had taken only 40 marks to equal a dollar. Workers were being paid twice a day and rushed out during their lunch hour, shoving wheelbarrows of money through the streets in panic. They were desperate to buy anything they could find before shopkeepers raised prices again.

November 15, 1867. An invention that would change Wall Street forever was unveiled in New York City. The “stock ticker” was introduced by Edward Calahan. The ticker replaced the job of a stock runner, whose job was literally to run from the stock exchange to brokerage offices to impart the latest prices. Calahan thought up the stock ticker as a way to relay prices faster and more accurately to investors around the country. In 1869, another inventor would improve the device further in what would be his first successful invention. That guy was none other than Thomas Edison. His success with the stock ticker meant he could afford to set up his own laboratory for research and inventions. So, the career of one of the most famous inventors was made possible by his work on the stock ticker.

Investor update.

Recently, our investor portal provider Registry Direct introduced two important changes as part of their ongoing commitment to keeping account and personal information secure.

Firstly, two factor authentication was introduced for logins. This means when you log in using your email address and password, you will also be prompted to enter a 6 digit code supplied by an authenticator app on your mobile device, such as Google or Microsoft Authenticator apps. If you have not yet set this up, you will be prompted to do so next time you log in. You will also have the option to nominate an alternative email address. If your mobile device is not available when you need to log in, Registry Direct can send a code to your alternative email address for you to use instead.

Secondly, if you elect to update any of your details (for example, bank details or postal address) while logged in, you will be sent a verification code via SMS to your registered mobile number. This will need to be entered to complete the update. For convenience, you will only need to do this SMS verification once per login session and only if you wish to make changes to your details.

And finally…five things to make you think

  • Why aren’t there any B batteries? *
  • Can you be a closet claustrophobic?
  • How do they make Teflon stick to the pan?
  • What was the best thing before sliced bread?
  • How do a fool and his money get together in the first place?

* Actually, we did the research, and it turns out that B batteries (and A batteries for that matter) did exist a long time ago. You can read all about it here.

Got a question?

If you want to learn more about our Funds or invest with us, the buttons below will take you to the right places.

If you want to catch up on earlier versions of our monthly newsletter, you can view them here.

If you have a question, you can email or call using the details below, or simply reply to this email and we will be in touch with you as soon as we can.

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This information has been prepared by Affluence Funds Management Limited ABN 68 604 406 297 AFS licence no. 475940 (Affluence) as general information only. It does not purport to be complete, and it does not take into account your investment objectives, financial situation or needs. Prospective investors should consider those matters and read the Product Disclosure Statement (PDS) or Information Memorandum (IM) offering units in the relevant Affluence Fund before making an investment decision. The PDS or IM for each Affluence Fund contains important notices and disclaimers and important information about each offer.

As with all investments, an investment in any Affluence Fund is subject to risks. If these risks eventuate, they may result in a reduction in the value of your investment and/or a reduction or cessation of distributions. Distributions are not guaranteed, nor is the return of your capital. Past performance is not indicative of future performance. It is important that you know that the value of your investment will go up and down over time, returns from each Fund will vary over time, future returns may differ from past returns, and returns are not guaranteed. All of this means that you could lose money on an investment in an Affluence Fund. As set out in the PDS or IM for each Affluence Fund, key risks include concentration risk, economic and market risk, legal and regulatory risk, manager and key person risk, liquidity risk, leverage risk and currency risk. Affluence aims, where possible, to actively manage risks. However, some risks are outside our control.

This information and the information in the PDS or IM are not recommendations by Affluence or any of its officers, employees, agents or advisers. Potential investors are encouraged to obtain independent expert advice before making any investment decision.

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