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Hi ,

September saw corrections in most share markets, with the ASX200 Index down 3.7%. We like to think that some of our best work is done in those down periods, and so it was last month. Our Affluence Investment Fund delivered a small positive return, outperforming the ASX200 by 4%. The Affluence LIC Fund did even better, with a 5% outperformance. And the Affluence Small Companies Fund outperformed by 3.5%. You can read more about what we're doing in each of our funds in the monthly reports below.

At the end of September, almost anyone who knows anything about financial markets was predicting a volatile six weeks leading up to the US election. In the two weeks since then, Mr D Trump has caught (and recovered) from the virus, Joe Biden has significantly increased his lead over him (on paper), and one of the larger vaccine trials has been paused after an unexpected illness in one of the patients. All bad for markets, you would think. And yet, in that same period, the ASX200 Index is up around 7%. Which just goes to prove two timeless investment lessons:

  1. Markets don't always react to news the way you think they will. And,
  2. When everyone is thinking the same thing, it's likely something different will happen.

It turns out markets are unpredictable. We believe it is wise not to forget that. One of the key traits we see in many of the great fund managers we follow, is that they acknowledge (and even embrace) the randomness of markets. They plan for more than one scenario. That doesn't mean that they don't have a view on the future. Just that they don't bet the farm on that view. Too often, we see the opposite. Investment managers who take big positions based on what they think might happen next in markets. Usually, they lose more of those bets than they win. At best, it’s a wild ride for their investors.

If you'd like to invest with us this month, you've got until next Friday 23 October to apply for the Affluence Investment Fund or Affluence Small Company Fund. Affluence LIC Fund applications must be completed by 30 October. 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 0.3% in September. Since commencing in 2014, returns have exceeded the ASX200 and 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 1.7% in September. Since commencing in 2016, returns have exceeded the ASX200 and distributions have averaged 7.5% per annum, paid quarterly. See the report for more detail.

ALF Monthly Report

Affluence Small Company Fund Report

The Fund returned -0.2% in September and has outperformed the ASX Small Ordinaries index by 13% over the past year. If you're a wholesale investor looking for out of favour small cap value, here it is.

ASF Monthly Report

Latest Presentation

If you want to know more about how we invest in our Affluence Investment Fund and Affluence LIC Fund, here's our latest presentation. It covers what we look for, key portfolio stats and performance.

View Presentation

Invest in LICs the easy way

Affluence LIC Fund return

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 21% in the past year, and still sits on a portfolio of LICs at an average 18% discount to the value of their underlying assets.

Learn More

Other Interesting Stuff

It might be popular, but it's not very useful:

First calculated on May 26, 1896, the Dow Jones Industrial Average is the second oldest US market index after the Dow Jones Transportation Average. The Dow measures the performance of 30 large companies listed on US stock exchanges. It was created by Charles Dow, the editor of The Wall Street Journal and the co-founder of Dow Jones & Company. It was named after him and his business associate, statistician Edward Jones. Ed is long gone, and so these days, companies to be included in the Dow are selected by a committee and the index is maintained by Standard & Poors.

Although it is one of the most commonly followed equity indices, it is a poor representation of the overall US stock market because it only includes 30 companies, is not weighted by market capitalisation, and does not use a weighted arithmetic mean. The value of the index is calculated based on the sum of the stock prices of the companies included in the index. So, a company with a higher share price has a bigger impact on the index regardless of its size.

The oldest constituent of the index right now is Procter and Gamble, the manufacturer behind cleaning, personal care and hygiene products such as Gillette, Febreze, Pantene, Olay, Old Spice and Vicks. Weirdly, when researching this, we discovered that Procter and Gamble also owns the Aussie Haircare brand. The logo is a Kangaroo and the slogan is "add some roo to your do". It is not available in Australia, probably because that tag line is so bad that nobody would buy it! Procter has been in the Dow since 1932. The next oldest constituent is yellow sticky note maker 3M, which was added in 1976. The newest are Amgen, Honeywell and Salesforce, which were added in August this year.

The largest component of the Dow is UnitedHealth Group, a health care company based in Minnesota. Three of the ten largest US companies (Amazon, Alphabet & Facebook) are not Dow members.

If you're interested, Visual Capitalist has a great graphic of every company in and out of the Dow since 1928, which you can view here.

Chart of the month - 200 years of interest rates.

We know we keep banging on about interest rates. But they are important because they impact the prices of most other assets over the long term. And perhaps the most important interest rate in the world is the US 10 year treasury (Government) bond yield.

As you can see below, we are at an all time low. Historically, these rates usually have cycles that last between 22 and 27 years. When cycles shift from rising to falling rates, a quick reversal typically takes place. This was last seen in 1982, when interest rates dropped 25%—from 14.2% to 10.4%—in one year. However, a different trend can be seen when falling rates switch to rising trends. These reversals typically average 2-14 years.

As near-zero rates seem likely for the extended future, ultra-low income yields may continue for some time. Which of course makes it all the more important to be able to identify alternative investment opportunities that can still deliver decent returns. That is something we spend a lot of time working on.

200 years interest rates

Quote of the month:

"Today is not to talk about passive management, except to say that it was a very good idea for a long while, but risks are higher at higher prices as nothing exceeds like success. In current markets many are making the obvious mistake of reaching for yield, but others are making the mistake of focusing on the investment management cost rather than the huge risk of investing in some of the many thousands of indices or ETFs at excessive valuations, and holding stocks that may have been pumped up as part of the index process. Risk must be heeded when Apple, the company with the highest market capitalisation in the world, fell by over US$500 billion or over 22% in less than 3 weeks in September. The smart money IPOs of so called Unicorns, earn no profits, little revenues but billions of market capitalisations and exorbitant promoter fees. They result in index funds having to sell their biggest holdings such as Apple, regardless of price, to make room for them. Index bond funds also continue to have systemic issues and are subject to regular outflows, particularly high yield funds."

MFF portfolio manager, Chris Mackay, at this month's AGM.

Chris Mackay is the lesser well known of the Magellan Investment Management founders. He stepped back from the Magellan funds management business some years back to focus on managing MFF Capital, an LIC that was also the very first Magellan fund. MFF has an exceptional track record, but is not currently part of our Affluence LIC Fund portfolio. There are a variety of reasons for this, including the heavily concentrated US centric portfolio, a less than compelling NTA discount and the potential for options on issue to limit future upside. Nonetheless, Chris Mackay has proven himself to be an exceptional investor over a long period of time and no doubt we will own MFF again at some stage.

Video of the month:

If you've got a spare eight minutes and thirty four seconds, famed activist investor Carl Icahn tells Andrew Ross Sorkin a story about his first activist investment (he still owns it) and why he fired 12 floors of people.

Carl Icahn

This day in (financial) history:

In 1691, Sir Stephen Evance incorporates the Company for Making Hollow Sword Blades in the North of England. It was one of the earliest companies to issue tradable stock. It was also the predecessor of the South Sea Company, whose own shares cause a speculative fever that overheats and nearly destroys the British financial system in 1720.

Photo(s) of the month:

This month, we bring you the 2020 astronomy photos of the year.

Astronomy photos

And finally, this is giving...

If you’ve ever traveled overseas, you’ve likely visited one of Chuck Feeney’s stores. He co-founded DFS, Duty Free Shoppers and was once worth $8 billion. Was, because he gave it away. Here’s why.

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.