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February 2024 reports and things we found interesting

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Hi ,

The Affluence Income Trust accepted its first new investors in February, and we are pleased to report that the Fund continues to exceed its Target Return and distribute cash payments at an annualised rate of 7.5% per annum. We have added three new underlying funds during the month, and the Fund is currently fully invested across 15 investments.

February is half year reporting season in Australia. The consensus is that earnings were better than the fairly downbeat expectations. While there was limited movement at the index level, companies that reported better than expected results moved markedly higher, while those that missed were punished. Exceptions to this rule continued to be small and microcap stocks and LICs, where there remains a dearth of investors, regardless of opportunity. For example, at 29 February, the Affluence LIC Fund portfolio had an average discount to underlying net asset value of over 23%, a new record. Below, is a link to our latest review of the LIC market, which explains what’s going on in more detail.

Back when we first started sending a monthly newsletter, we would profile one of our investments (usually one of the many exceptional underlying funds we invest in), and explain why we liked it. This was consistently some of our most read content. Over time, it also helped readers to understand our investment philosophy and process in more detail. We have decided to bring it back. Follow the link below to read all about Melbourne based fixed income manager, Merricks Capital.

We’ve also redesigned our Fund reports over the last few months to add more information so our investors can further understand our performance and strategy, and increase transparency. You can access the latest, updated reports for all Affluence Funds from the links below.

Should you wish to invest in any of our funds with us this month, applications close on 28 March for the Affluence LIC Fund, and 25 March for all other Affluence Funds. Go to our website and click “Invest Now” to apply online or access application and other forms for any of our funds.

If you have any questions or feedback, reply to this email or give us a call.


Daryl, Greg and the Affluence Team.


Affluence Fund Reports


Affluence Income Trust

The Affluence Income Trust returned 0.6% in February. The Fund pays monthly distributions, and the current distribution rate is 7.5% per annum.

The cut-off for monthly applications and withdrawals is Monday 25 March.

February 2024 Fund Report


Affluence Investment Fund

The Affluence Investment Fund returned -0.1% in February. Since commencing, the Fund has returned 7.6% per annum, including monthly distributions of 6.3% per annum.

The cut-off for monthly applications and withdrawals is Monday 25 March.

February 2024 Fund Report


Affluence LIC Fund

The Affluence LIC Fund returned -0.7% in February. Since the Fund commenced, returns have averaged 10.9% per annum, compared to 9.3% per annum for the ASX 200 Index.

The cut-off for monthly applications and withdrawals is Thursday 28 March.

February 2024 Fund Report


Affluence Small Company Fund

The Affluence Small Company Fund returned -0.9% in February. Since commencing, returns have averaged 8.5% per annum vs 6.7% per annum for the ASX Small Ords Index.

Available to wholesale investors only. The cut-off for monthly applications and withdrawals is Monday 25 March.

February 2024 Fund Report


Investment Profile – Merricks Capital Partners Fund


The Merricks Capital Partners Fund is a core investment in the Affluence Income Trust and has also been a long term holding in the Affluence Investment Fund. Click below to find out why we like it.


LIC Portfolio Discount hits new record!



Right now, no one likes LICs. And this makes us very excited. Why?

  • Discounts are at record highs (for our portfolio, at least).
  • Two LIC holdings are priced below the value of their cash.
  • Activist investors are climbing up the register of many LICs, and will force change over time.
  • The underlying portfolios of many LICs (particularly those focused on small caps and resources) are themselves cheap, providing a “double discount” opportunity.

Compared to overpriced banks and large resource companies, there’s some exceptional value in LICs. Eventually, investors will realise this, and a normalisation will occur. Its impossible to predict the timing, but given the already extreme levels of discounts, we believe its likely sooner rather than later.


Things we found interesting


Charts of the Month: Small and micro-cap cyclicality

There are around 1,750 companies listed on ASX. But it’s surprisingly hard to get quality data on average long-term returns for those outside the top 600. That’s because most of the money is tied up in larger stocks, and the data follows the money. For example, the best known ASX small cap index is the ASX Small Ords. But it’s actually composed from the returns of the 101st to 300th companies on ASX by size. So it completely ignores almost 1,500 of the smallest companies, including many valued at over $500 million. Similarly, the ASX Emerging Companies Index covers roughly the 300th to 600th largest companies, excluding over 1,000 of the smallest.

Luckily, Australian small-cap specialist Acorn Capital have done the numbers and constructed their own data set for genuinely small and micro cap companies. The Acorn Capital / SIRCA Microcap Accumulation Index includes about 1,500 of the smallest companies and excludes the 250 largest. And there’s a couple of key lessons from the data.


Firstly, returns from small and micro caps have roughly approximated those from the ASX200 over the very long term. But within years, or even for a few years, returns can vary widely between large caps and small caps. The last two years have been one such example.

Secondly, following these periods of underperformance, small caps tend to then outperform just as spectacularly. Years where small caps outperform large caps by 20%+ are surprisingly common. All of which suggests that now might be a very good time to buy small caps.

Quote of the month:

“I go where I can find the most value. Currently, that happens to be in small caps and illiquid securities … I have a list of roughly 80 large cap names that I believe are great franchises that I’d love to own. But the prices at which I’d love to own them are so much lower than today’s prices it would make you laugh.”

Quote from long time trader Michael Burry, made famous in the book (then the movie), The Big Short. The quote is from years ago, but in our view holds very true today as well.

The importance of probability

In this short video from a few years ago, Nassim Taleb explains one of the key mistakes many investors make, to their great cost. Understanding probability is one of the most underrated investment tools there is. We suspect a failure to analyse the probability and impact of an investor being wrong is the single greatest source of investor losses. Most people work out their expected return. Many stop there. But unless you’re dealing with capital secure investments, the actual return is almost certain to be different from the expected return. The key thing is to ask a few more questions:

  • What is the range of reasonably possible returns, particularly to the downside?
  • What is the probability of each of these outcomes?
  • How will you react if the downside scenarios occur?
  • And finally, perhaps the most important of all, what is the worst case outcome?

In essence, what you’re trying to do is make sure you never have a situation where you lose so much of your investment capital, that it permanently impacts your financial goals, and your lifestyle.

Financial history lesson:

On 14 March 1821, Wall Street was open for business, but not a single share was traded the entire day.

In March 1837, one of the earliest known cases of insider trading played out in France. Two stock speculators, brothers Francois and Joseph Blanc, were charged with fraud. The brothers had bribed the operators of a telegraph to encode secret messages that would disclose the movements of the Paris stock market. This enabled the Blancs to take advantage of other investors, who had to wait until the next day’s newspaper for market updates. It seems like a quick guilty verdict should have been on the cards. But the court acquitted the Blancs. As it turned out, their conduct was improper, but not at that time forbidden by law.


In 2011, according to author Michael Lewis, hedge fund manager Kyle Bass bought $1 million worth of US nickels (5 cent coins). Why on earth would anyone want to own that many coins? Well, a nickel weighs five grams, 25% of which is actually nickel and the rest is copper. At the time, the metal content of each coin was worth 6.8 cents. So Bass was buying 6.8 cents for 5 cents, or $1.36 million worth of base metals for just $1 million.

However, there’s a catch. To realise this 6.8 cents, Bass would have to sell the copper and nickel as metal, not coin. And this isn’t so easy. Since 2006, it’s been illegal to melt pennies and nickels down. As a regulated hedge fund manager, Bass probably isn’t willing to break the law. In the meantime, the theoretical value of these coins has continued to grow. Barrons worked out in 2022 that there was 12.5 cents of nickel in a nickel coin, and another 3.75 cents of copper.

In theory, Bass has no downside exposure, because a nickel can never be worth less than its face value of five cents. But when you take into account inflation, holding costs, and the opportunity cost of not being able to invest in something else, maybe it wasn’t such a great trade.

Vaguely interesting facts.

  • If you visit a cinema in Colombia, that crunching sound during the movie might not be popcorn. It could be the local cinema favourite, roasted ants.
  • Mars’s surface shifts in a different way than Earth’s, resulting in volcanoes up to 100 times bigger than those on our planet.
  • US president Abe Lincoln turned down the opportunity to populate the United States with elephants.
  • Thomas Edison nicknamed two of his kids Dot and Dash, after the Morse code signals.
  • Novo Nordisk makes up over 60% of the value of Denmark’s entire stock market. *


* Novo Nordisk is the maker of blockbuster weight loss wonder drug Ozempic, among others. Ozempic contains semaglutide. It was originally developed to treat diabetes, but generated explosive growth for the company as an aid to weight loss. The company has had an enormously positive impact on Denmark’s economy. Novo Nordisk’s market value is currently greater than the entire GDP of Denmark and it is the 12th largest listed company in the world. Two-thirds of Denmark’s overall economic growth in 2022 was attributed to the pharmaceutical industry, most of that from Novo.

And finally, from the internet:

These crypto coins keep getting crazier and crazier. What about this one:

  • 27 trillion in circulation.
  • No limits on supply.
  • 25% more added in the last year.·
  • 30% is controlled by just 1% of holders

Oh wait…that’s the US Dollar!

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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.






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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Affluence Funds Management
Level 22, 127 Creek St,
Brisbane, Queensland 4000

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