Innova Moderately Conservative Model

October 2023

Performance Table

1MTH3MTH6MTH1YR3YR (PA)5YR (PA)INCEPTION (PA)
Innova Moderately Conservative Model-0.93%-2.33%-1.14%3.43%3.78%3.91%3.71%
FE Peer Group Moderately Conservative-1.29%-2.87%-2.32%1.76%1.02%2.11%2.43%
Excess Returns0.36%0.54%1.18%1.67%2.76%1.80%1.28%
RBA Cash Rate Target + 2.5%0.50%1.63%3.22%6.09%3.93%3.74%3.89%

Portfolio Performance

In October, financial markets experienced heightened and sustained volatility, impacting both fixed-income and equity sectors. The persistent rally in yields, reaching 5%, was propelled by robust economic growth, weakened demand for treasuries, and increased issuance. The US, driven by a resilient consumer base, showcased a remarkable 4.9% YoY real GDP growth in Q3, primarily fuelled by strong consumption. Market sentiment remained strongly influenced by the Federal Reserve's comments, with concerns revolving around robust demand potentially leading to additional rate hikes. As a result, broader equities witnessed an average decline of approximately 3% in October, contributing to an overall quarter decrease of around 10%. Our defensive asset allocation strategy proved instrumental in achieving outperformance during October. Floating rate notes emerged as a reliable source of defensive income, standing out as one of the few asset classes to yield positive returns for the month. Detractors were Korean equities, agriculture stocks (hedged) and not owning gold, which was up around 9% for the month. Contributors include no allocation to A-REITs which were down around 7%, gold miners which were up 6%, domestic floating rate credit, and a relative underweight to domestic equities which were down more than global peers. Supply concerns eased on the WTI crude oil front which brought it back down to $80 a barrel. Again, there weren’t many areas of markets in which to hide given the rise in yields and continued market volatility, though our defensiveness allowed us to outperform peers over the month.

Asset Allocation Exposure

Breakdown pie chart
Fixed Interest38.14%
Global Shares18.04%
Australian Shares12.89%
Real Assets6.16%
Alternatives1.91%
Cash22.85%

Top Portfolio Holdings

Realm Short Term Income Ordinary
16.20%
Macquarie True Index Cash Fund
12.83%
Pendal Enhanced Cash Fund
9.04%
Global X Us Treasury Bond
8.57%
Vanguard Australian Government Bond Index ETF
8.03%
Quay Global Real Estate Fund
4.85%
VanEck Vectors MSCI International Value ETF
4.77%
DNR Capital Aus Eq High Conviction
4.71%
Janus Henderson Diversified Credit
3.44%
Invesco Wholesale Australian Share Fund
3.37%

Growth of $100,000 since inception

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Market Outlook

Interest rate sensitive parts of the economy such as housing and credit demand have seen slowing, with the impact of rate hikes still yet to fully affect consumer spending on a broader scale, which is driving the strong growth in the US – with ~70% of GDP being consumption. The Fed’s concerns continue to revolve around this strong demand and fears around inflation. Notably, the recent rollover in wages, a significant contributor to persistent inflation, adds a nuanced layer to the inflationary landscape. On the fiscal front, many market participants are concerned around the Fed no longer being a buyer of Treasuries, which in the face of a deep deficit to fund, is a concern for fixed-income investors as to where the liquidity would come from. This all coincides with a bump up again in inflation volatility, which is the Fed’s deepest concern despite financial conditions being clearly tighter, though perhaps not tight enough to supress the sheer demand that continues to drive growth – which was worsened by a revised excess savings figure in October to the upside by approximately ~$800 billion. Weaker-than-expected jobs data for October brought some relief to markets, but a substantial portion of this downturn was attributed to auto strikes in the US. Internally, our economic leading indicators persistently point to challenging conditions for the US economy heading into 2024. The impending need for both governments and corporations to refinance previous debt incurred at lower interest rates may certainly be a catalyst of economic fragility. Whilst the consumer still seems to be spending carefree, the liquidity coming from government stimulus and an extended period of strong labour markets may begin to dry up going into 2024. As we know, labour market indicators are often lagging, and historically the unwinding of an inverted yield curve has never been a good sign for labour markets. Our defensive stance reflects our concerns for risk assets going into 2024. The combination of a low equity risk premium and attractive yields from fixed-income markets makes income-oriented assets more appealing. We are currently assessing areas of risk markets that offer a compelling asymmetric pay-off profile based on valuation, carry and other factors.

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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