All things being equal I don’t believe it likely that Rob will...

All things being equal I don’t believe it likely that Rob will be displaced anytime soon. VG8 was different in that they were able to state that he would be focussing on the global funds.

They can talk about all the things they are doing to support the share price. They’ve been reiterating these for some years now. The main one and a prerequisite is outperformance, not just positive performance but outperformance.

They can and will continue to proclaim the benefits of the other 3 tenets of attaining a premium to NTA. However they won’t succeed in stalling indefinitely while waiting for a portfolio performance turnaround.

2 things need to change separately from stock picking. I hope someone’s listening. I don’t know whether they would make these changes or concede that there has been error (or whether there would only instigate such changes if and when Phil takes over one day or perhaps even be part of his rationale for having to do so).

Firstly, net exposure. The ability to vary exposure is meant to enhance performance but I believe it’s hampered returns. It’s a simple principle. When prices are extreme, lower the exposure. When pessimism is rife, go all in then hold on tight as long as it takes for markets to rationalise.

However it appears they’ve been reactionary rather than visionary.

I don’t recall witnessing 90+%, most of the time it seems to be hovering around 70% and nor do I remember ever having seen it much less than around 50%.

I don’t believe Rob is a bad investor. Has he been unlucky? There have been a culmination of problems. I believe he has a role in stock analysis, perhaps someone else should be allocating capital management and exposure levels etc. I can see him with a valuable contribution to make as a lead or joint investment manager.

I hate hearing about fund managers being conservatively positioned given they’re feeling cautious about the challenging conditions and outlook.

The time to be cautious is at peak euphoria. We pay them to detect these periods. Good investors know how to be contrarian. Buffet, Marks and others talk about this and implement it as part of their methodology. Not surprisingly they all do very well. So much of long term track records comes from these infrequent extreme but detectable moments.

Most of the time be 80-90% or similar net exposed. At peak fear be all in. When near the most pessimistic times be somewhere in between.

Contrast this to what I’ve been measuring over the past several years. Not correcting for dividends but I don’t think it makes a difference, in the week of VGI’s top NTA in 2021, net exposure was 90% (108/18), NTA $2.73 on 18/6/21. Then at the recent low (hopefully to be maintained as the all time low!) it fell to 51% (93/42), $1.68 on 14/10/22. Exposure has been even lower at 39% (91/52), $1.70 on 23/9/22.

That looks to me like buying high and selling low, not to mention the vast majority of the rest of the time underperforming due to being about 1/3 in cash most of the time even though markets tend to outperform cash over longer periods.

A huge, unnecessary drag on their stock picking ability. Even the best investor in the world would struggle to match the index based on this metric together with my next point…

Second of all, currency hedging.

Given that they can’t predict currency movements, when do they plan to stop the hedging? At what levels do they intend to switch it on and off?

I don’t know how the hedging works but goodness knows how much it costs. I’d be surprised if it weren’t more than the 1% handicap that actively managed funds have over passive funds in terms of management fees.

Why are they attempting to smooth out short term fluctuations to the detriment of long term performance?

That is contrary to their stated goal of focusing on the long term.

I’m reasonably confidently that the AUD:USD is almost always contained between about 50c and $1. I believe there’s an economic basis for this being the case. So this is a situation where the longer the term the less likely it will have gone anywhere, certainly for mine the longer the time period the lower will be the annualised currency movement. Essentially, the longer the investment time horizon, the greater will be the loss from hedging currency, i.e. the more we lose. The reality is that what smooths out currency movements is the time horizon, not paying to artificially alter NTA movements over arbitrary time periods.

Most investors in Australia and outside of the US who want exposure to international equities probably also wish for some foreign currency exposure anyway, and probably not just USD so likely to the various currencies roughly in the same proportions as the equity opportunities that are deemed attractive at any rate. So let’s be unhedged please, not unhinged!

I would only hedge at the extremes. Also I’d just convert cash in one currency to the other then park it in the highest interest account whenever it’s nearer to the extremes of the ranges those currencies fluctuate within or if ever there’s a fundamental basis for believing a currency is valued unjustifiably.

Anyways did anyone notice the biggest volume of trading for the year yesterday at close to 0.5% of outstanding shares. Eventually the tide should turn. The selling at these low levels, which for most would have to be at a loss, might become exhausted. Or not.

These are my 2 points which you could call my 2 cents’ worth but I believe are worth far more than 2 cents in lost returns. Happy to hear an alternative viewpoint. I’m not an expert.