Innova Sustainable Future Balanced Portfolio

May 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Sustainable Future Balanced Portfolio0.70%0.67%7.41%8.07%--7.73%
FE Peer Group Balanced0.84%0.74%6.46%8.03%3.02%4.58%7.46%
Excess Returns-0.14%-0.07%0.95%0.04%--0.27%
RBA Cash Rate Target + 3%0.57%1.81%3.65%7.43%5.30%4.58%6.54%

Portfolio Performance

Markets have been hypersensitive to macroeconomic data and the anticipated actions of the Federal Reserve. Many developed nations have already cut their interest rates (Canada, Europe, Sweden, Switzerland), will the RBA and the Fed follow, and when? May saw equities and bonds (yields down) rally across the board and commodities sell off after a strong run in previous months. The rally was driven by a pull forward of rate cut expectations as well as downward revisions to growth data suggesting some softness in US growth, which the markets reacted well to. The soft-landing narrative is still very much consensus, with equity valuations continuing to stretch further upwards, and a clear broadening out over the past few months with regions such as China, Europe and India catching up to the US and Japan.

The portfolios overall lagged for the month driven by the relative allocations within equities, where European equities, US tech (growth) and infrastructure were standouts. Global value underperformed global market-cap weighted indices, emerging markets suffered losses, and domestic large caps outperformed small caps. However, we did have strong performers in global quality small caps and gold miners. Our fixed-income performance was strong relative to benchmark, with domestic floating-rate instruments again being an outperformer. Our allocations to specific regions and maturities in government bonds was also a positive contributor. Trend-following had a negative month, gold bullion was down, the US dollar down 1.5% and the AUDUSD up 1.85%. Our allocation to alternative risk premia had a positive return for the month, above the alternatives benchmark.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest32.31%
Global Shares29.54%
Australian Shares23.28%
Real Assets6.46%
Alternatives2.91%
Cash5.50%

Top Portfolio Holdings

iShares Core MSCI Australia ESG ETF
10.43%
PIMCO ESG Global Bond Fund - Wholesale Class
9.58%
Pendal Sustainable Australian Fixed Interest Fund
8.82%
Pendal Horizon Sustainable Australian Share Fund
8.32%
Western Asset Bond Fund
8.02%
Arrowstreet Global Equity No 2 Fund - I Class
6.83%
Impax Sustainable Leaders Fund
6.75%
Dimensional Global Real Estate Investment Trust
6.46%
Regnan Credit Impact Trust
5.88%
Robeco Emerging Conservative Equity Fund (AUD)
5.46%

Growth of $100,000 since inception

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Please note Benchmark performance is priced daily.

Market Outlook

Our base case is that we avoid a deep recession globally, but still expect an environment of slower growth alongside declining inflation. This is supported by weakening consumer data, cooling of labour markets and some earnings disruptions across household US companies, which likely indicates there is a softening of general conditions. The gap between Wall Street and Main Street in the US has significantly widened, raising concerns for small businesses and households, especially those who must refinance their debt. Evidence of this weakness is shown in increasing multiple job-holder numbers, falling full-time jobs and less people quitting their jobs from a year ago. The “restrictive” effects of higher interest rates seem to finally be taking effect, and the Federal Reserve is looking for any hint of significant weakness to pull the trigger on rate cuts. The only risk to the path down is the copious amounts of fiscal spending which may wash away the tightening, and feed into inflation – not allowing the Fed to relieve stressed refinancers (including the government themselves).

Whilst the US may seem somewhat troubled, the local picture is much worse. Our interest rates never got as high as the US, but the effect on debt-to-service ratios domestically was much harsher. Other economies experiencing harsher debt servicing are regions such as Canada and Korea, but they don’t have the same inflation problem, and hence are able to cut rates with more ease than the RBA. This is why the RBA is really in a tough spot; sticky services inflation, benign growth, increasing unemployment rates and highly restrictive rates. Immigration is the saving grace currently, and real disposable income has truly been squeezed. Not helping the matter is also volatility in commodity markets, which after their early year run up have started to come off – a headwind for many Australia sectors and the Aussie dollar.

Investment Objective

he aim of the portfolio is to exceed the RBA Target Cash Rate by 3% p.a., after fees, over rolling 6-year periods.

Key Information

Inception30/06/2022
Management Fee0.36%
Maximum Expected Volatility9.00%
Standard Risk MeasureMedium to High
BenchmarkRBA Cash Rate Target + 3.0%
Model CodeINR015
Investment Timeframe6 years
PlatformHUB24

About the Manager

Innova is a boutique portfolio management firm with institutional-grade capabilities that specialises in risk-focused portfolio solutions. Co-founded by Dan Miles and Dinyar Irani in 2010, Innova’s objective is to provide robust investment solutions that work with investor behaviour, rather than against it.

Innova has a comprehensive understanding of investment risk and has developed a proprietary risk management framework based on rigorous academic research to support their investment process. Their quantitative framework acts as the compass, with their experienced investment team determining the best approach to execute this outcome. Innova's systematic approach to portfolio construction has enabled them to navigate global markets successfully, even during challenging market cycles.

Innova has consistently adhered to their investment process across all market regimes. They have rigorously tested their process and analysed hundreds of historical data sources to ensure they always have conviction in their investment decision making. As a result, Innova is able to consistently manage portfolio risk during market downturns and their performance track record is a testament to the effectiveness of their approach.

Important Information

This document has been prepared by Innova Asset Management Pty Ltd (Innova), ABN 99 141 597 104, Corporate Authorised Representative of Innova Investment Management, AFSL 509578 for provision to Australian financial services (AFS) licensees and their representatives, and for other persons who are wholesale clients under section 761G of the Corporations Act.
To the extent that this document may contain financial product advice, it is general advice only as it does not take into account the objectives, financial situation or needs of any particular person. Further, any such general advice does not relate to any particular financial product and is not intended to influence any person in making a decision in relation to a particular financial product. No remuneration (including a commission) or other benefit is received by Innova or its associates in relation to any advice in this document apart from that which it would receive without giving such advice. No recommendation, opinion, offer, solicitation or advertisement to buy or sell any financial products or acquire any services of the type referred to or to adopt any particular investment strategy is made in this document to any person.
All investment involves risks, including possible delays in repayments and loss of income and principal invested. Any discussion of risks contained in this document with respect to any type of product or service should not be considered to be a disclosure of all risks or a complete discussion of the risks involved. Past performance information provided in this document is not indicative of future results and the illustrations are not intended to project or predict future investment returns.
The performance reporting in this document is a representation only. Innova has used a calculation methodology to simulate the performance of the relevant Investment Program since commencement, net of all fees and commissions at the fund/security level, and gross of other fees and commissions. Simulated performance does not reflect the performance of any specific account. Each account will have its own unique performance history, due to factors including varied methods of implementation, fee and tax structures. Therefore, simulated performance may vary significantly compared to that of any specific account. The out of sample backtested performance data has been simulated by Innova and is for illustrative purposed only, and is not representative of any investment or product, Results based on simulated performance results have certain inherent limitations as these results do not represent actual trading. No representation is being made that any account will or is likely to achieve profits or losses similar to those being shown.
Although non-Fund specific information has been prepared from sources believed to be reliable, we offer no guarantees as to its accuracy or completeness. Any performance figures are not promises of future performance and are not guaranteed. Opinions expressed are valid at the date this document was published and may change. All dollars are Australian dollars unless otherwise specified.

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