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Hi ,

All three of our funds had another good month in August and all have delivered positive returns since their pre-COVID highs. Conversely, the ASX 200 Accumulation Index remained 14% below its high from February this year. Globally, we saw technology darlings soar to new heights in August, as more money poured into the largest stocks, to which we have almost no exposure. In Australia, we saw a big rally in small caps, to which all of our funds have a reasonable allocation. On balance, it worked out well for us.

During August and early September, we have continued to reduce equity market allocations in all of our funds. We feel at this point that risks are rising in the face of increasing prices and as a result we are positioning more conservatively.

At the same time, there are still a few bargains out there if you're a contrarian. We have been able to identify an increasing number of smaller ASX listed investment companies, funds and REITs that are trading at discounts of 40% plus to their underlying asset value. Each of our funds has between 5-10% allocated to such holdings right now. These investments include a handful of shopping centre REITs, three private equity funds and an agricultural fund. This is an example of the potential value that's on offer if you are prepared to look hard, and to be patient. You can read more about what we're doing in each of our funds in the monthly reports below.

If you'd like to invest with us this month, you've got until next Friday 25 September to apply for the Affluence Investment Fund or Small Company Fund. Affluence LIC Fund applications must be completed by 30 September. As always, go to our website and click the "Invest Now" button to apply online or download application/withdrawal forms.

If you have any questions, simply reply to this email or give us a call at any time.

Thanks for your time, and for your continued interest in what we do.

Daryl and the Affluence Team

Affluence Fund Reports & News

AIF Report July 2020

Affluence Investment Fund Report

The Fund returned 2.3% in August. Since commencing in 2014, returns have exceeded the ASX200. Distributions have averaged 6.7% per annum, paid monthly. See the report for more detail.

AIF Monthly Report

Affluence LIC Fund Report

The Fund returned 4.8% in August. Since commencing in 2016, returns have exceeded the ASX200. Distributions have averaged 7.4% per annum, paid quarterly. See the report for more detail.

ALF Monthly Report

Affluence Small Company Fund Report

The Fund returned 7.1% in August and has outperformed the ASX Small Ordinaries index by 11% over the past year. If you're a wholesale investor looking for out of favour small cap value, here it is.

ASF Monthly Report

Fund Presentation

We've just published an updated presentation for both the Affluence Investment Fund and Affluence LIC Fund. If you want to know more about how we invest, you can access it here.

View Presentation

Invest in LICs the easy way


With a unique discount capture strategy, quarterly distributions and access to a wide range of quality LICs, the Affluence LIC Fund may be a useful addition to your portfolio.

The Fund has outperformed the ASX200 by 18% in the past year, and still sits on a portfolio of LICs at an average 19% discount to their underlying value.

Click below to learn more about this and the other Affluence Funds.

Learn More

Other Interesting Stuff

Investment lesson (and chart) of the month:

This month, let's talk about mean reversion, and how it could impact market returns. We often talk about how, in our Affluence Investment Fund portfolio, we seek to own more of the assets and sectors that are cheap (relative to history) and less of those which are expensive. This strategy relies on so-called "mean reversion", meaning values will return to at least their long term average over time. It also requires patience. Over the past three to four years, the differences in price between what is cheap and what is expensive have continued to widen. That's both frustrating and exciting for us.

It's frustrating, because the divergences in many of these asset classes are very close to historic extremes. It means we've been swimming against the tide for quite some time, and the tide has been getting stronger. It's exciting, because we've managed to outperform our investment benchmarks even though we've been in what, for us, has been a difficult environment. Its also exciting because when that tide turns, there's potentially a lot of easy ground to make up.

Right now in our Affluence Investment Fund, we're overweight Australian stocks, small caps, LICs, shopping centre REITs, commodities and other value plays. We're underweight developed market stocks (particularly the US), technology and growth stocks. To give you some idea of the level of mispricing in markets, Canadian analyst Dave Rosenberg has taken a look at what would happen if some of the overvalued/undervalued asset classes returned to normal, using a minimum of 20 years historical data. Here's what he had to say:

"We have seen the value trade try to turn around in fits and starts over recent years, but can never get going on a sustained basis. We’re not going to try and predict when the ultimate turning point will happen, but at such extreme readings in its relationship to growth stocks it is a matter of when, not if. Remember that history is replete with examples of assets ultimately mean reverting in ratio-terms, not levels. No extreme condition has ever lasted indefinitely. Now in each one of these cases, since these are ratios or relative pricing, one can go down, one can go up, or they can magically mean revert right in the middle.

If we had a situation where the asset class in question had to mean revert all on its own, this is what the price decline would imply:

  • Growth stocks relative to value -43%%; or value +70% relative to growth.
  • S&P 500 relative to commodity index -60%; or +150% for the commodity index relative to the S&P 500.
  • Nasdaq (tech stocks) relative to S&P 500 -40%; or +50% for the S&P 500.
  • All-country index (relative to ex-U.S. index) -27%; or +37% for the ex-U.S. index.

It’s not to say that momentum in the winners can’t continue, but nothing goes up in a straight line forever. Eventually, investors begin to get lost in the excitement of the moment and perspective is lost. As the relative strength of these asset classes reaches extremes investors should begin to be wary.”

We might be there right now. This year so far, to the end of August, there hasn't been such a wide chasm between the best and worst sectors in nearly 90 years, as you can see in the chart below.

Lucky vs smart

Quote of the month:

"Your wealth is like your children — the primary link between your present and the future. You should try to think about it in the same way. You want your children to have freedom but you also want them to be good people who can take care of themselves. You don’t want to blow it, because you don’t get a second chance. When you invest, it’s not your wealth today, but it’s your future that you’re really managing."

Peter L Bernstein

Peter was a legendary investor in the 1950's and 60's. He learned about both booms and busts at an early age. His grandfather’s leather factory became a growth business in the 1920s when the exploding popularity of the automobile created huge demand for sponges and chamois-skin polishing cloths. Then, in 1929, Bernstein’s father sold the business for a price he never dreamed he would get — and put all the proceeds into the stock market, which promptly crashed, nearly wiping the family out. Somewhat ironically, his father then went on to start a wealth management firm!

After teaching economics at Williams College and a five-year stint in commercial banking, Peter Bernstein took over the management of his father's wealth management firm in 1951. After taking charge, Peter personally managed billions of dollars of individual and institutional portfolios, delivering exceptional results. The assets under his management had grown more than tenfold by the time the firm was sold in 1967 and he resigned in 1973 to become an economic consultant to institutional investors and corporations around the world.

Peter died in 2009. A lot of the lessons he learned from over 50 years of investing are contained in this 2004 interview (plus notes) with Jason Zweig. We highly recommend it.

Video of the month:

If you ever get to New York, we recommend a visit to the excellent Intrepid Sea, Air & Space Museum, which includes the chance to view the space shuttle Enterprise. If you do, you might be surprised by how primitive the whole thing looks, both inside and outside. In this amusing 17 minute video, Bret Copeland explains how the space shuttle lands. It's both way more complicated, and way less sophisticated than we imagined...

This day in (financial) history:

1890: Baring Brothers, one of England's leading investment banks, disclosed that its loans to what we would now call "emerging markets," like Argentina and Chile, have gone bad and that the firm will go bust unless the Bank of England comes to its aid. The Bank steps in, rounding up a rescue syndicate of other investment banks and assuming 28.5 million pounds' worth of Barings' liabilities. "Thus was averted what would probably have been the greatest panic in the world's history."

From Clement Juglar, A Brief History of Panics and Their Periodic Occurrence in the United States (G.P. Putnam's, New York, 1916; reprinted, Fraser Publishing Co., Burlington, VT, 1993), pp. 140-141.

Photo(s) of the month:

It's that time of the year again. Sit back, relax and enjoy viewing the 20 finalists for the wildlife comedy photo of the year awards. You’re welcome.

COVID-19 in Hubei

And finally...

Continuing our theme from last month, Far Side cartoonist Gary Larson forsaw the future of public bathrooms post COVID way back in the 1980's. Expect to see these signs being installed outside rest rooms soon.

COVID-19 in Hubei

Media and Presentations

We regularly present to investment groups on various topics including our Affluence Funds, how we choose great fund managers, LICs and the investment environment.

If you would like to meet with us or have us speak with your investment group, get in touch.

Are you an Affluence Member?

We’ve spent hundreds of hours looking for Australia's best Fund Managers and LICs.

Click below to register as an Affluence Member and see the results of all our hard work! Access our Affluence Fund portfolios and profiles of managers we invest with.

Thinking about Investing with us?

If you would like to learn more about our Funds, or invest with us, the buttons below will take you to the right places.

If you have a question, you can email or call using the details below. Alternatively, click on the 'contact us' button, fill out the contact form on our website and we will be in touch with you as soon as we can.

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This information has been prepared by Affluence Funds Management Limited ABN 68 604 406 297 AFS licence no. 475940 (Affluence) as general information only. It does not purport to be complete and it does not take into account your investment objectives, financial situation or needs. Prospective investors in any Affluence Fund should consider those matters and read the Product Disclosure Statement (PDS) or Information Memorandum (IM) offering units in the relevant Affluence Fund before making an investment decision. The PDS or IM for each Affluence Fund contain important notices and disclaimers and important information about the relevant offer.

As with all investments, an investment in any Affluence Fund is subject to risks. If these risks eventuate, they may result in a reduction in the value of your investment and/or a reduction or cessation of distributions. Distributions are not guaranteed, nor is the return of your capital. Past performance is not indicative of future performance. The value of your investment will go up and down over time, returns from each fund will vary over time, future returns may differ from past returns, and returns are not guaranteed. All of this means that there is always the chance that you could lose money on an investment. As set out in the PDS or IM for each Affluence Fund, key risks include concentration risk, economic and market risk, legal and regulatory risk, manager and key person risk, liquidity risk, leverage risk and currency risk. Affluence aims, where possible, to actively manage risks. However, some risks are outside our control.

This information and the information in the PDS or IM is not a recommendation by Affluence or any of its officers, employees, agents or advisers and potential investors are encouraged to obtain independent expert advice before any investment decision.

The Morningstar Rating™ is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser.


Affluence Funds Management
Level 5, 320 Adelaide St,
Brisbane, Queensland 4000