The month of May had a number of milestones for Rask Invest. Firstly, we hit $20M in funds under management. This is still small and nimble for a funds management company but we have seen these increases in the face of great global volatility and uncertainty. This shows us we have fantastic investors who do not panic and use volatility as opportunity.
The second milestone was the introduction of three new model portfolios. With the addition of Saturn, Mercury and Solar we now round out the Rask Invest offering the whole way up and down the risk curve.
Finally, we completed our first major rebalance. Escape Velocity introduced a handful of new ETFs to compliment our existing, pre-dominantly passive, ETFs. The new holdings provide a deeper level of diversification across our portfolios and are additional levers to pull across our strategic asset allocation in the future.
Portfolio performance
As far as returns go, the month of May was exceptional. Despite turmoil still raging in the US, US markets were robust and saw the advent of the TACO trade – “Trump always chickens out”. For Rask Invest portfolios this saw returns from 6% for Saturn down to 0.36% for Solar our cash securities model. May was an exceptional month and investors must remember, past performance is no indication of future performance.
Timing of the portfolio rebalance and new models
March and April provided us with our first serious bit of volatility. The geo-political shockwave of tariffs through the market provided the backdrop to push ahead with the launch of the new models.
Firstly, market corrections are naturally occurring, but historically they only come along approximately once every 12-18 months. We’ve learnt never to waste a crisis.
The tariff correction reduced our early investors capital gains tax positions and had more recent investors in the red. Additionally, we lean into famed investor, Howard Mark’s memo on selling, “Why sell something you think has a positive long-term future to prepare for a dip you expect to be temporary?” We believe it to be temporary and provided an excellent opportunity to use the downturn as a great starting point for the new models and new holdings.
As the numbers above show, we couldn’t have asked for a better starting point. As long-term investors though, we understand one month does not an investment make. All the same though, it’s nice.
Spotlight on ATEC
Despite the US being our largest contributor to performance for the month, I feel it is important to talk about the Betashares ASX/S&P Technology Index ETF (ASX: ATEC).
ATEC will be highly discussed in the context of these portfolios. It will frequently appear in our top contributors as far as performance is concerned and will also stick out in the largest detractors list too due to its volatility.
ATEC will also be much discussed due the businesses held within it. These companies are some of Australia’s brightest performers but can also be polarising, such as global logistics software business WiseTech Global Limited (ASX: WTC).
ATEC’s role in the Rask portfolios
If you’ve followed along from our early days you’ll know Owen and I have often pondered over our Australian equities position. Up until the recent portfolio changes, the Vanguard Australian Shares ETF (ASX: VAS) was our sole Australian equity exposure and in the case of Jupiter it made up 40% of the portfolio.
We explored the idea of adding an equal weight ETF and mid-small cap ETFs to the portfolio to provide diversification away from banks and resource businesses. However, none of these sat well with us. With equal weight ETFs you see monthly rebalancing of all holdings to bring the portfolio back to equal weight. With the mi-small cap ETFs you see the good growing companies exit the ETF and falling companies enter at the highest weights. Neither situation is ideal.
This made us sit back and ask the question, what are we really trying to achieve with this diversification? Was it diversification for diversifications sake? Or was it going to add to the portfolio?
Enter ATEC. If you have listened to us talk about individual companies you would be familiar with the companies in the ETF.
ATEC is a market cap weighted passive ETF which provides investors with exposure to the ASX/S&P Technology Index. A common question is, “we have one of those?” The index was created in the boom of the Afterpay days when we had our own FANGs, called WAAX. This acronym covered WiseTech, Afterpay, Altium and Xero. With the decline of Altium and the takeover of Afterpay, WAAX no longer gets a run in the financial media circles.
But, it doesn’t mean the space isn’t healthy. And, as you can see the blanket wide descriptor of “tech” is loose. What isn’t tech these days?
A common argument against the ETF will be analysts looking at the companies inside it and saying “they’re overvalued”. As an investor in any of these companies, there would not have been a week go by where you didn’t hear they were expensive. Dealing with that, plus the volatility that comes with lofty valuations, is the price of admission.
At its maximum we hold 10% of ATEC in the all growth portfolio, Saturn. ATEC is present in Jupiter and Martian as well and not in our Terra or Mercury portfolios.
We believe a 10% – or less weighting – in an ETF that spreads our risk across 40 stocks is an appropriate way to gain exposure to the high growth potential and diversify into tomorrows leaders whilst still maintaining exposure to the beating heart of the Australian market of banks and resources. In a nutshell, we can have our cake and eat it to.
Rask Invest live update this Thursday
Owen and I will be going live at 3pm this Thursday on Youtube. Here’s the link. Come and have a chat with us live as we walk through the portfolio, discuss the current positions and answer your questions. If you cannot make it live please add your questions to the event space in the Rask Community. We promise you we will get to them.
