Innova Sustainable Future Growth Portfolio

April 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Sustainable Future Growth Portfolio-2.29%2.88%11.89%8.23%--9.28%
FE Peer Group Growth-2.36%2.20%11.44%8.32%4.41%5.67%9.37%
Excess Returns0.07%0.68%0.45%-0.09%---0.09%

Portfolio Performance

April saw most risk markets sell off as a “stagflation” (high inflation and slowing growth) narrative began to emerge following a softer GDP print and hotter inflation data than the market expected. Interest rate sensitive government treasuries also sold off (yields up) because of these prints, and the chance of rate cuts almost entirely disappeared for the year. Looking closer at the growth data, consumption is still resilient – with other components such as inventories causing the shortfall. Over the past months the disinflation trend has been met with some bumps in the road, causing unexpected volatility in bond markets. Global developed equities were down ~3%, domestic equities down closer to ~4% and the Global aggregate bond index down 2.5%. Emerging market equities had a rebound, being in the green, led by China/HK. In currency markets, the US dollar continued its strength with rising yields, up 3.5% against the Yen. Commodities saw mixed outcomes; notably, copper up 13% and iron ore recovering by 11%. The consensus view for the United States economy seems to still be a soft landing, though other economies such as Europe, UK, Canada, and Australia are stuck between trying to follow the Fed’s monetary actions whilst balancing weaker relative economic growth compared to the U.S. The portfolios performed well on a relative basis compared to benchmarks due to our slight defensive tilt, being underweight US in equities, and being overweight floating-rate credit instead of holding interest-rate sensitive government bonds. Our underweight to US tech and A-REITs helped performance, as well as our overweight to emerging market equities, gold miners and UK equities.

Asset Allocation Exposure

Breakdown pie chart
Global Shares38.53%
Australian Shares31.36%
Fixed Interest14.64%
Real Assets7.37%
Alternatives5.41%
Cash2.69%

Top Portfolio Holdings

iShares Core MSCI Australia ESG ETF
14.02%
Pendal Horizon Sustainable Australian Share Fund
11.19%
Arrowstreet Global Equity No 2 Fund - I Class
8.68%
Impax Sustainable Leaders Fund
8.57%
Dimensional Global Real Estate Investment Trust
7.37%
Robeco Emerging Conservative Equity Fund (AUD)
6.93%
Perennial Better Future Trust
6.15%
VanEck MSCI International Sustainable Equity ETF
5.83%
PIMCO Trends
5.41%
PIMCO ESG Global Bond Fund - Wholesale Class
5.30%

Growth of $100,000 since inception

ResetPerformance line chart
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Market Outlook

Clearly, the markets continue to dislike the “strong” data (resilient labour markets, high wage growth, upticks in manufacturing and consumption intact). The reason being, is that the basis of stretched valuations initially relied upon the 6-7 rate cuts in 2024, which have been taken away. Whilst there has certainly been some impressive earnings growth, and upside surprises in the Q1 earnings reports – valuations for US equities are still far beyond their fundamentals and will continue to be hurt if yield volatility continues. Whilst the pricing around this narrative may have gone too far (yields too high, USD too high and commodities too high), we wait patiently for more consistent macroeconomic data in the U.S. before taking any action. The most recent development was the reduction of quantitative tightening (increasing liquidity), which allowed bond yields to fall and stocks to rally.

Domestically, economic cracks are revealing themselves, with retail sales coming in much lower at -0.4% than the 0.3% expected, and unemployment ticking up to 3.8%. Inflation came in hotter than expected at 3.6% instead of 3.4% expected, and house prices continue to rise across the country, with a YoY reading of 9.4%. Whilst there is certainly weakness in household consumption, and less disposable income due to rising outstanding mortgage rates - the likelihood of a rate hike was brought back onto the table due to the hotter price pressures for the month.

Investment Objective

The aim of the portfolio is to exceed the RBA Target Cash Rate by 4% p.a., after fees, over rolling 7-year periods.

Key Information

Inception30/06/2022
Management Fee0.36%
Maximum Expected Volatility11.00%
Standard Risk MeasureHigh
Benchmark
Model CodeINR016
Investment Timeframe7 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.