Innova Sustainable Future Balanced Portfolio

February 2024

Performance Table

Innova Sustainable Future Balanced Portfolio1.99%6.70%5.42%9.77%--8.52%
FE Peer Group Balanced1.45%5.68%5.06%8.91%4.43%4.86%8.16%
Excess Returns0.54%1.02%0.36%0.86%--0.36%
RBA Cash Rate Target + 3%0.71%1.81%3.73%7.09%4.94%4.44%6.41%

Portfolio Performance

February was another risk-on month, supporting equity prices on a very broad level. Consistent positive earnings revisions were another big driver of this positive momentum, as well as the continued positive sentiment – which can be seen especially in options market activity. As for fixed-income, yields rose during the month with slightly hotter than expected inflation data and strong labour markets continued to push rate cut expectations back further in the year. Concerns around the path of disinflation have been at the forefront a little more than January, with expected inflation figures slightly rising. Global equities outperformed domestic equities, with Japan and quality small caps being standouts. Whilst US treasury bonds saw a loss; domestic fixed income had a positive month all round. Commodities were mixed, with monetary-based investments such as gold and bitcoin continuing gains, though iron ore slumped ~11% with demand concerns. Oil has continued its rise off tighter supply, despite gains in the USD for the month. The Aussie dollar was down ~1.6% for the month. Overweight's to Korean equities, global small caps and active EM were contributors for the month, though an overall underweight to growth, and exposure to gold miners were detractors. In fixed-income, domestic floating-rate exposures outperformed interest-rate sensitive government bonds due to the rise in US yields (prices down).

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest32.58%
Global Shares29.07%
Australian Shares23.53%
Real Assets6.65%

Top Portfolio Holdings

iShares Core MSCI Australia ESG ETF
PIMCO ESG Global Bond Fund - Wholesale Class
Pendal Sustainable Australian Fixed Interest Fund
Pendal Horizon Sustainable Australian Share Fund
Western Asset Bond Fund
Impax Sustainable Leaders Fund
Dimensional Global Real Estate Investment Trust
Arrowstreet Global Equity No 2 Fund - I Class
Regnan Credit Impact Trust
Robeco Emerging Conservative Equity Fund (AUD)

Growth of $100,000 since inception

ResetPerformance line chart
Powered by data from FE fundinfo

Market Outlook

There’s been a clear decoupling in economic performances between the United States and other G7 nations, primarily due to differences in impact of interest rates between them. It’s no surprise the US economy has been robust, being a country with almost all their mortgages being fixed for 30-years at extremely low rates, and fiscal deficit spending which has bolstered the spending capacity of their consumers. Compare this to Canada, Europe and Australia, who have experienced harsher economic outcomes and tightness throughout their systems. This robustness in the US, accompanied with disinflation trotting towards target explains the consensus scenario of a soft-landing. On top of this, earnings revision have been positive in 2024, supporting equity prices and prompting speculation in derivate markets for US tech. There’s been a recent uptick in inflation indicators which may limit the number of rate cuts this year. Oil prices continue to push higher and expected inflation is up. Thus far, it appears that the US consumer, less affected by interest rate fluctuations, has managed higher rates effectively. Nevertheless, we are closely monitoring labour markets, which have begun to show signs of cooling.

Domestically, inflation has been stickier, and consumers are struggling more than the US. Higher sensitivity to short rates, less government support and rising unemployment are all weighing on consumer confidence. We don’t expect a pivot stance from the RBA until later in 2024 when we can see clear signs of looseness in labour markets and prices stabilizing. Important to note too that iron ore prices are off ~24% year-to-date, which has weighed on the stock market here as well.

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

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

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.