Innova Active Balanced Portfolio

June 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Active Balanced Portfolio0.19%-1.10%3.48%8.17%3.73%-4.80%
FE Peer Group Balanced0.66%-0.56%3.75%7.88%2.78%4.25%3.90%
Excess Returns-0.47%-0.54%-0.27%0.29%0.95%-0.90%
RBA Cash Rate Target + 3%0.83%1.81%3.94%7.63%5.51%4.69%5.33%

Portfolio Performance

June continued to show a gradual slowing in economic momentum, which bodes well for the soft-landing narrative. The US has made significant strides toward achieving its 2% inflation target, creating an ideal backdrop for the Federal Reserve to cut rates in the latter half of 2024, aligning with actions by other developed market central banks. However, fiscal policy discussions have shown no indication of reducing spending, suggesting potential structural inflationary buoyancy over the medium term. Domestically, the prospect of reducing interest rates is tempered by persistent inflation in service sectors. Equity markets exhibited considerable divergence in performance during June. The S&P 500 surged more than 5%, driven by concentrated sectors, whereas value indices declined by 2-3%. European equities fell by 3.5% due to political instability, while the ASX 200 gained nearly 1%. Korean equities rose sharply by 7.74%, and emerging markets generally saw gains around 1.5%. In fixed income, government bonds sensitive to interest rates enjoyed broad rallies, supported by disinflationary trends in the US and rate cuts in the Eurozone and UK. Higher-grade corporate bonds also performed well alongside the equity market rally. The USD strengthened by over 1% for the month, and commodities, except for oil which reached approximately $85 a barrel, generally saw declines. The Innova portfolios faced challenges, primarily due to our overweight position in cyclical equities and high valuations of US mega caps getting higher (which we have little exposure to). In fixed income, our preference for domestic instruments resulted in slight underperformance, while our alternative investments segment showed negative returns overall.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest33.19%
Global Shares29.00%
Australian Shares23.71%
Real Assets6.29%
Alternatives2.86%
Cash4.95%

Top Portfolio Holdings

Realm Short Term Income Ordinary
12.07%
DNR Capital Aus Eq High Conviction
8.68%
Global X Us Treasury Bond
8.30%
Vanguard Australian Government Bond Index ETF
6.90%
VanEck Vectors MSCI International Value ETF
6.24%
Invesco Wholesale Australian Share Fund
6.03%
Schroder Equity Opportunities Professional
5.85%
Capital Group New Perspective
5.06%
Quay Global Real Estate Fund
4.72%
Betashares Ftse 100 ETF
4.42%

Growth of $100,000 since inception

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Market Outlook

We continue to see a clear disinflationary path in the US. Housing and auto insurance are the main components currently keeping inflation measures elevated, however we understand these factors are lagging and temporary, reinforcing our confidence in moving closer to the 2% target. In light of this, the Fed is expected to have sufficient room for a couple of rate cuts over the next few quarters, facilitating a modest cyclical recovery. This is likely to benefit rate-sensitive sectors, particularly small caps, which have promising earnings projections for the next two years. However, the labour market shows signs of weakening momentum, prompting cautionary observations—though not yet indicative of an imminent recession. The key part is that markets enjoy gradual softening, and hates uncertainty, but since the SVB and Signature Bank crisis in 2023, we haven’t seen a very significant “shock”. A notable contrast from last year is the higher starting point for GDP forecasts, with expectations now exceeding 2% for 2024 compared to around 0.8% previously. This optimism carries risks if expectations are not met, including in corporate earnings where major mega-cap stocks are anticipated to sustain elevated earnings growth. The political landscape in the US will likely draw significant attention for the remainder of 2024, following recent controversies in Europe and France.

Domestically, we observe divergence in the inflation trajectory influenced by immigration and rent increases, suggesting a slower decline in interest rates. Our equity markets are trading above 1 standard deviation from their long-term valuations, despite anaemic domestic growth, weakening consumers and immigration keeping us afloat. While futures pricing hints at potential rate hikes due to persistent inflation, we do not anticipate the RBA will raise rates.

Investment Objective

To deliver a total investment return in line with the benchmark, after fees, over a rolling six year period

Key Information

Inception31/03/2021
Management Fee0.36%
Maximum Expected Volatility9.00%
Standard Risk MeasureMedium to High
BenchmarkRBA Cash Rate Target + 3.0%
Model CodeINN003BAL
Investment Timeframe6 years
PlatformBT Panorama

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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