Innova Moderately Conservative Model

March 2024

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Moderately Conservative Model2.06%3.59%7.57%8.64%4.44%4.84%4.55%
FE Peer Group Moderately Conservative1.48%2.67%6.91%6.52%2.40%3.04%3.29%
Excess Returns0.58%0.92%0.66%2.12%2.04%1.80%1.26%
RBA Cash Rate Target + 2.5%0.77%1.95%3.63%6.92%4.63%4.03%4.07%

Portfolio Performance

March was another strong month for risk assets, with strength continuing for the US economy. Whilst the disinflation trend has slowed down, there is no doubt that we are at levels which the Federal Reserve is a lot more comfortable with, despite some recent upticks in future inflation uncertainty. The Swiss National Bank set the stage by being the first developed market to cut rates for the cycle. However, the US has continuously seen rate cuts being pushed back further towards the November election, which is a reflection of the strong inflation prints, upward trend in oil, and robust labour market data that has been surprising to the upside. Domestic and global equities were up around 3% for the month, with 10-year government bonds also in the green for developed markets in the month (yields down). Credit was also up for the month, though the standout for March was commodity prices, with gold and oil up ~8% and the CRB commodity index up ~6%. Despite falling yields and risk-on sentiment continuing to brew, the US dollar was up against most currencies, though the AUD was up 1% against other currencies such as the JPY, EUR and GBP. Importantly for domestic markets, iron ore has struggled for the past quarter, down 30%, and down ~16% for the month. The Innova portfolios had strong outperformance over multi-asset benchmarks for the month, with gold miners being a significant contributor returning 19.38%. Our value tilt and allocation to global quality small caps in equities were positive contributors, and our mix in fixed income outperformed its benchmark. Detractors for the month included not holding A-REITS or gold bullion, and allocations to emerging market equities.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest35.34%
Global Shares21.07%
Australian Shares15.44%
Real Assets6.23%
Alternatives1.95%
Cash19.96%

Top Portfolio Holdings

Realm Short Term Income Ordinary
14.40%
Macquarie True Index Cash Fund
9.93%
Pendal Enhanced Cash Fund
8.53%
Global X Us Treasury Bond
8.11%
Vanguard Australian Government Bond Index ETF
7.74%
DNR Capital Aus Eq High Conviction
5.79%
VanEck Vectors MSCI International Value ETF
5.04%
Quay Global Real Estate Fund
4.95%
Invesco Wholesale Australian Share Fund
4.66%
Schroders Equity Opportunities
3.49%

Growth of $100,000 since inception

ResetPerformance line chart
5YR3YR1YR
~PoweredByDataFromFEfundinfo~

Market Outlook

We’ve started to see typical signs of a “reflation” cycle coming through into markets throughout March and in early April. A strong catalyst for this was seeing the ISM manufacturing survey tick above 50, which indicated that we’re now in “expansionary” territory – after 16 months of “contraction”. Core inflation in the US has now printed 0.4% MoM 3 times in a row, which is a stickier pattern than the previous disinflationary pulses that came through. Services ex shelter has been ticking up, wages have remained at levels much higher than pre-COVID and labour market data has stayed stronger than expectations. These prints, alongside oil reaching 5-month highs at ~$85 has led investors to question whether rate cuts in 2024 are realistic. The 10Y US yield has reached yearly highs off these signs that the economy is stronger than anticipated, and probability of a June cut as of the 10th of April is at a mere 18%. A big theme of 2024 has been the decoupling of economies after a synchronized rate hiking cycle in developed markets. The main reason for this is the difference in interest rate sensitivities between economies, which has significantly impacted growth and inflation in different ways across the board. The US economy has gone through a period of fiscal dominance, supporting the wider consumer, as well as locking in fixed rate 30Y mortgages. The larger end of the corporate sector has also been well positioned, with 82% of S&P 500 companies having their debt maturing after 2026 – though weakness certainly exists within smaller-cap companies. This robustness in the US has caused rate hikes to have minimal effects, as compared to countries such as Canada, Germany, UK, Australia and New Zealand. We expect the central banks in these more rate-sensitive economies to cut earlier than the Fed, in efforts to boost their more fragile economies – who have been more heavily impacted by tighter financial conditions.

Our positioning will benefit from this reflation narrative, with value equities that should outperform in a classic reacceleration cycle, and an underweight to long-maturity bonds which can suffer in an environment with bond volatility caused by inflation uncertainty, a steepening yield-curve and the Fed no longer being a “buyer at any price” of Treasuries. Large cap US equities and US credit markets look very stretched and won’t necessarily be the biggest beneficiaries of a reflation trade, – so we look elsewhere for allocation. All eyes going forward will be on the Q1 earnings and whether they can reinforce the extreme bullish sentiment among investors across the past quarter.

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.

Contact Us

Download Privacy Policy

Download FSG