Innova Aspiration Portfolio - Flagship

August 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Aspiration Portfolio - Flagship-0.63%2.90%4.41%9.69%4.02%7.18%6.87%
FE Peer Group Growth0.25%3.72%4.92%11.26%3.76%6.05%6.59%
Excess Returns-0.88%-0.82%-0.51%-1.57%0.26%1.13%0.28%
RBA Cash Rate Target + 5%0.88%2.30%4.65%9.64%7.73%6.78%6.72%

Portfolio Performance

Asset markets continue to show quite divergent outcomes as inflation has become yesterday’s problem, and growth concerns are taking centre stage. August saw broader global equities down 1.25% and domestic equities up 0.45%. In bond markets, yields continue to fall, causing government bonds to outperform floating rate credit. Despite the US dollar falling 2.3%, commodities continued to show weakness aside from gold, which was up 2.28% in USD terms. The Australian dollar was also up an impressive 4.08% for the month. The Innova portfolios underperformed in August, driven by tactical tilts towards cyclical sectors, emerging markets and being primarily unhedged. Despite this we still hold a view that the US economy is normalizing rather than meaningfully contracting, supported by GDP nowcasts, likely rate cuts and resilient corporate earnings. The labour story has been blurred by the heavy immigration which has contributed to the rise in unemployment, and the Fed has given confidence to the market on several rate cuts. The RBA left rates at 4.35% as expected during August.

Asset Allocation Exposure

Breakdown pie chart
Global Shares46.91%
Australian Shares28.09%
Fixed Interest9.52%
Real Assets7.78%
Alternatives6.65%
Cash1.05%

Top Portfolio Holdings

DNR Capital Aus Eq High Conviction
10.45%
VanEck Vectors MSCI International Value ETF
9.28%
Capital Group New Perspective
7.50%
Invesco Wholesale Australian Share Fund
7.07%
Betashares Ftse 100 ETF
7.02%
Schroders Equity Opportunities
6.83%
Quay Global Real Estate Fund
6.51%
BetaShares S&P 500 Equal Weight ETF
5.14%
GQG Partners Emerging Markets Equity Fund
4.95%
VanEck MSCI International Small Companies Quality ETF
4.93%

Growth of $100,000 since inception

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Market Outlook

We’re at a point where monetary policy in the United States is tight, evidenced by the gradually slowing of the labour markets and economy overall. While we understand that monetary policy operates with lags, the extent of the lag in this cycle has been surprising due to several idiosyncrasies. We’re referring to the mega liquidity injections following COVID, which heavily supported consumer savings and spending – and essentially dampened volatility (alongside some other things). On top of this, a huge proportion of debt that was fixed at low rates, and a new regime of deglobalization leading to heavy government spending – all inflating asset prices and contributed to this peculiar rate hiking cycle. The nuance now comes from the speed and the extent of the rate cuts, rather than whether there will be any. Given inflation with real-time rent indicators is sitting closer to a mere 1.5%, and the labour market having shown signs of slowing, why shouldn’t the Fed cut? From a cyclical perspective, we do not foresee a deep deflationary cycle, which is commonly associated with recessionary periods. Since June, the Atlanta Fed's GDP Nowcast has oscillated between 2% and 3%, while government spending continues to support business activity and investment. Additionally, the Federal Reserve has bandwidth for a meaningful rate-cutting cycle to bring rates back to “neutral”. As a result, our base case is a soft landing, with a cyclical recovery led by small-cap and cyclical stocks— sectors that have been underappreciated for some time and trade on relative valuation discounts compared to their expensive peers. This scenario should also provide relief for emerging market nations as the U.S. dollar weakens, which typically occurs during rate-cutting cycles in the United States.

Domestic equities remain a concern, as 80% of their returns in 2024 has been driven by multiple expansion, despite declining earnings and exposure to a vulnerable Chinese economy. The 30% year-to-date decline in iron ore prices reflects this, and that is on top of heavily pressured consumers as seen by low real disposable incomes.

Investment Objective

The portfolio aims to provide a return exceeding the RBA Target Cash Rate +5% p.a., before fees, over rolling 10 year periods.

Key Information

Inception01/09/2017
Management Fee0.36%
Maximum Expected Volatility15.00%
Standard Risk MeasureHigh
BenchmarkRBA Cash Rate Target + 5.0%
Model CodeINR014
Investment Timeframe10 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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