Innova Moderately Conservative Portfolio

December 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Moderately Conservative Portfolio-0.70%0.64%4.07%7.16%3.32%4.34%4.63%
FE Peer Group Moderately Conservative-0.47%0.39%3.93%6.42%1.96%2.85%3.39%
Excess Returns-0.23%0.25%0.14%0.74%1.36%1.49%1.24%

Portfolio Performance

In December interest rate markets repriced rate cuts further out in 2025 on the back of strength in the US economy, higher global upside inflation surprises and continued, heightened uncertainty around fiscal policy. The final months of 2024 saw a volatile equity market, though early 2025 has brought a degree of stability despite 10-year government bond yields approaching 5%. Throughout 2024, financial markets exhibited heightened sensitivity to macroeconomic data releases. This heightened sensitivity is likely to persist as long as macroeconomic volatility remains elevated.

Global equities returned 2.6% for the month, surpassing domestic equities which declined by 3.08%. However, this performance was significantly influenced by the 5% depreciation of the Australian Dollar against the US Dollar (AUDUSD) in December. When hedged for currency fluctuations, global equities actually declined by 1.72%. Given the substantial increase in 10-year yields, credit securities outperformed interest rate-sensitive bonds in December. As expected, rate-sensitive equity sectors, including Real Estate Investment Trusts (REITs) and small-cap stocks, experienced the most significant losses. Conversely, emerging market equities outperformed their developed market counterparts.

The Innova portfolios underperformed benchmarks due to overweight positions in global mid-caps and small caps relative to large caps. While underweights to REITs and interest rate sensitive government bonds boosted returns, a larger risk contribution comes from global equities, and particularly the overweights to more cyclical equities.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest36.24%
Global Shares21.13%
Australian Shares15.84%
Real Assets6.35%
Alternatives4.69%
Cash15.74%

Top Portfolio Holdings

Realm Short Term Income Ordinary
14.10%
Global X Us Treasury Bond
10.08%
Janus Henderson Conservative Fixed Interest
7.68%
Vanguard Australian Government Bond Index ETF
7.38%
Macquarie True Index Cash Fund
6.14%
DNR Capital Aus Eq High Conviction
5.92%
Quay Global Real Estate Fund
4.96%
VanEck Vectors MSCI International Value ETF
4.88%
Invesco Wholesale Australian Share Fund
4.83%
Capital Group New Perspective Fund Hedged (AU)
3.37%

Growth of $100,000 since inception

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Market Outlook

As outlined in previous outlooks, we anticipate 2025 will be marked by persistently high interest rates in the US, contrasting with significant divergence across global markets. The economic profiles of developed markets are increasingly distinct, with debt burdens concentrated in varying sectors. For instance, Australia, Canada, and South Korea face high levels of private sector (household) debt relative to GDP, creating substantial pressure on consumers. Meanwhile, the US and Japan are primarily burdened by government debt. These stark contrasts in fiscal and private sector dynamics underscore the need for a selective approach in 2025, particularly given the outsized influence the US continues to exert on other developed markets, including Australia.

We’ve spoken extensively about our belief in US exceptionalism as the consumer continues to stay resilient and supportive fiscal policies such as deregulation and tax cuts are slowly priced in. However, certain policies, including deportation measures and tariffs, are inherently inflationary. As a result, we view volatile inflation prints as a notable tail risk for 2025. Another significant development is the recent 15% rise in oil prices, bringing them to $80 a barrel. While this increase is largely attributed to supply constraints, history suggests that prices at these levels often contribute to upward pressure on inflation.

To navigate this macroeconomic volatility with changing correlations across asset classes, we are avoiding overweight positions in interest-rate sensitive government bonds, US mega caps on sky high valuations, and raw small-cap equities. Instead, investors should focus on companies with strong pricing power that can withstand higher interest rates and benefit from global cyclical growth.

Investment Objective

To achieve returns after the managed account fee that on average exceed RBA Cash Rate by 2.5%p.a. over periods of five years or more. The portfolio aims to provide investors with a diversified mix of defensive and growth assets.

Key Information

Inception03/08/2015
Management Fee0.36%
Maximum Expected Volatility7.00%
Standard Risk MeasureMedium
BenchmarkRBA Cash Rate Target + 2.5%
Model CodeCFSINNAMC
Investment Timeframe5 years
PlatformCFS First Wrap

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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