Innova Moderately Conservative Model

July 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Moderately Conservative Model2.62%3.33%5.11%8.32%3.74%4.53%4.63%
FE Peer Group Moderately Conservative1.82%3.20%3.79%6.83%1.56%2.65%3.34%
Excess Returns0.80%0.13%1.32%1.49%2.18%1.88%1.29%
RBA Cash Rate Target + 2.5%0.26%1.58%3.42%6.84%5.00%4.17%4.14%

Portfolio Performance

Market volatility spiked sharply in early August, as the Japanese stock market plunged over 20% and the S&P 500 retreated nearly 8% from its recent peak. While a confluence of factors ignited this panic, we primarily attribute it to the Bank of Japan's interest rate hike, which destabilized the highly leveraged "carry trade," compounded by intensifying recession fears stemming from weaker-than-expected manufacturing and employment data. Profit-taking from the recent AI euphoria exacerbated the selloff. Despite the short-lived turmoil, we maintained a composed outlook after scrutinizing underlying fundamentals. We did not perceive a material shift in the macroeconomic landscape. Equities advanced in July, with domestic stocks outperforming global counterparts. Within fixed income, declining yields favoured interest-rate sensitive government bonds over credit.

Innova portfolios delivered robust outperformance of approximately 1% relative to the median manager in July. This was primarily driven by our overweight to global value stocks and underweight position in mega-cap technology. Additional contributors included UK equities and quality small caps. The absence of A-REITs detracted from performance. Gold prices surged despite a broader commodity weakness, with a near 10% decline in iron ore due to Chinese economic headwinds. The Australian dollar weakened by 2.62% against the US dollar, mirroring the decline in commodity prices. Conversely, the Japanese yen appreciated by 7.65% against the US dollar as expectations of Fed rate cuts increased.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest35.35%
Global Shares19.98%
Australian Shares14.61%
Real Assets6.53%
Alternatives4.78%
Cash18.76%

Top Portfolio Holdings

Realm Short Term Income Ordinary
14.22%
Global X Us Treasury Bond
8.38%
Pendal Enhanced Cash Fund
8.34%
Vanguard Australian Government Bond Index ETF
7.72%
Macquarie True Index Cash Fund
6.86%
DNR Capital Aus Eq High Conviction
5.60%
Quay Global Real Estate Fund
5.16%
VanEck Vectors MSCI International Value ETF
4.56%
Invesco Wholesale Australian Share Fund
4.36%
Janus Henderson Diversified Credit
3.25%

Growth of $100,000 since inception

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5YR3YR1YR
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Market Outlook

The real economy in the US has demonstrated resilience despite a tumultuous past month. The yield curve has compressed dramatically, with the 2-year and 10-year yields nearly converging post-"crash." Historically, an unwinding yield curve has signalled a recession, but today's environment, characterized by anticipated rate cuts, a robust labour market, and a nowcast real GDP of 2.5% in the US, suggests a potential soft landing. Our base case remains a soft landing, and we anticipate a continued rotation towards cyclical sectors throughout the rate cutting cycle, reducing economic growth uncertainty. The July inflation data was positive, with auto insurance and rents remaining the primary drivers, which we previously indicated were transitory and not significant concerns. The recent surge in the US dollar has reduced import costs, contributing to goods deflation observed in prior months.

The emergence of a fiscally dominant regime prioritizing national security over globalization, through increased spending on supply chains, military, and infrastructure, is expected to sustain higher nominal growth compared to the past decade, historically favouring value over growth stocks. Coupled with substantial AI capex plans for data centre investments, AI capex remains the cornerstone of US economic optimism.

China's economy continues to face challenges. Weaker-than-expected growth, an overleveraged property market, and persistent deflation are impacting the world's second-largest economy. Australia's export sector has already been adversely affected and will continue to suffer from reduced iron ore and energy demand. Despite Australia's current resilience, we maintain a cautious stance on the economy. The Australian dollar has exhibited volatility in recent months due to factors including interest rate differentials, declining commodity prices, and overall risk sentiment. 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 five year period.

Key Information

Inception30/11/2015
Management Fee0.36%
Maximum Expected Volatility7.00%
Standard Risk MeasureMedium
BenchmarkRBA Cash Rate Target + 2.5%
Model CodeMACC000033
Investment Timeframe5 years
PlatformNetwealth

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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