Mark De Wan has joined Melbourne-based fund manager Cor Capital to help it expand its market reach and grow awareness of its track record across adviser networks. Founded in 2012, the Cor Capital Fund has been used successfully by family offices and self-directed investors to generate stable real returns.

Managing Director and Founder, Davin Hood, said of the hire that “Mark’s appointment reflects a new phase for the Cor Capital Fund as we bring our unique offering to the intermediary advice market. Since establishing the fund, we have cultivated the ‘all-weather’, ‘keep-me-wealthy’ experience for a discerning group of investors and now get to show something that’s well-tested to a new group, which is exciting.”

Mr De Wan has built broad and deep relationships across the advice market over his 20+ years in sales. He previously worked at Ellerston Capital, MLC, NAB Wealth and UBS Asset Management after beginning his career in financial planning.

Mark said “The Cor Capital Fund offers an unconventional combination of assets with some extra built-in insurances. There is value in its contrarian, disciplined management, and its daily liquidity. Advisers will also like the transparency of the process, which is rare for a fund with performance attributes that are pretty much ‘alternative’ and ‘absolute return’ in nature.”

The Cor Capital Fund invests broadly across large-cap equities, bonds, and cash, as well as precious metals. Its large physical gold bullion position is designed to protect its portfolio from events and conditions that would cause a sell-off of most financial assets. Broad weightings also mean the strategy is better placed to harvest volatility between assets.

According to Mr Hood “Gold is misunderstood as a portfolio tool. We have the largest allocation to gold assets of any multi-asset fund in the country, but have half the volatility and drawdowns of equities, and even so-called balanced funds in recent times. Gold price volatility and gold mining stocks cause havoc for many investors and results are often disappointing. However, with a contrarian mindset and active risk management, gold can contribute to portfolio growth beyond that of the common strategic ‘sliver’, or tactical speculations.”

With current inflation and monetary challenges, and developing geopolitical risks, now is a great time to be bringing a strategy that can avoid disasters yet still grow to the advised market.”

Mark added “I am delighted to join the team and represent the award-winning Cor Capital Fund in this newly created role. My engagement with Davin and co-portfolio manager, Tom Rachcoff has been equable from the beginning, and I look forward to getting started.”

The Cor Capital Fund holds a 4.25 ‘Superior’ rating from SQM Research and can be found on a range of fund platforms.

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“With much of the evidence suggesting SMSFs will not enjoy the strong tailwind of strong equity market returns in the next decade as they did in the last, as well as having cash and bond yields at historical lows, SMSF trustees will place a premium on preserving their capital.

“This focus will apply particularly to those SMSFs that are in retirement (nearly 50%) or those nearing retirement and can ill afford to put their retirement nest eggs at risk.”

Hood says the investment scene, both domestically and globally, is high risk, whether it’s assessed from a geopolitical, economic or health viewpoint.

“Although that’s the investment reality, it’s not reflected in the pricing of risk assets. But that day of reckoning must come – the markets can’t continue to defy economic reality forever.

“SMSFs will not be immune to any market correction of risk assets. In fact, many will be particularly vulnerable for several reasons.

“Failing to get good advice either because of its rising cost (this has been accentuated by the ongoing exit of advisers from the industry post the Financial Services Royal Commission) or a misplaced confidence in their ability to make the right investment decisions are one of the top reasons for disappointing investment returns in our opinion.

“Further, in the past decade, and despite historically low interest rates in recent years, these SMSFs have been ‘protected’ by their investment in fully franked ASX shares (at March 2020, they comprised $167 billion or 26% of all SMSF net assets, a number depressed by the sharp sell-off in the second half of that quarter) that have provided capital growth and healthy dividend income.

“It’s our contention that investors should not expect a similar performance from equity markets in the coming decade, and that dividend income is also likely to be constrained, at least for the next few years.

“Put simply, the traditional 60/40 type portfolios (60% growth/40% defensive) that many SMSFs rely on will, in all likelihood, fail to meet their investment objectives in the coming years.”

Hood says the combination of weaker, and, just as importantly, more volatile markets for risk assets, and lower dividend returns, will be compounded by investors often failing to be able to articulate long-term investment strategies and stick to them.

US research house Dalbar publishes quantitative analysis of investor behavior and has shown individual investors consistently underperform mutual funds because of poor decisions on when to buy, sell or switch out of mutual funds.  With an expectation of increased volatility, investors holding higher allocation to risky assets will probably make more poor investment decisions under stress.

“SMSFs, which, by law, must have an investment strategy, are still prone to make poor, short-term decisions, or, alternatively, are so locked into their strategy that they fail to make tactical decisions that can enhance their fund’s performance.

“Large institutions have the wherewithal to use different investment strategies to improve returns, such as defensive option strategies. But these strategies take SMSFs into territory they often don’t understand and certainly don’t embrace.

“But knowing they will need to find alternative ways of generating growth and income while preserving capital, there will be a growing appreciation of the need to find fund managers that can achieve these objectives without the need for high level of complexity or costs

“After the GFC, SMSFs increasingly shied away from fund managers that had failed to deliver during that crash and charged high fees for the privilege of doing so, with the bull market in equities in the past decade rewarding that strategy. [At 31 March 2020, managed fund assets stood at $39 billion or 6% of total net SMSF assets.]

“But in the wake of the COVID-induced recession they may no longer have that luxury if analysts are correct in predicting much lower returns in the next decade, opening the door for fund managers with investment strategies that aim to protect their capital, maintain purchasing power and provide alternative sources of return not tied to high allocations to equities.”

Against its peers the Cor Capital Fund is placed in the top decile over one, three and 5-year timeframes on the Netwealth platform; and in Morningstar’s Australia ‘multi asset – balanced’ database of 131 funds ( the Cor Capital Fund was the #1 performer over 1 and 5 years, as at 31 July 2020.)

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“This scale of market interference is staggering and likely needed to continue to stave off the eventual ‘end of cycle’ reckoning,” notes Davin Hood, Managing Director at Cor Capital, a Melbourne based investment manager.

“Traditional asset allocations have been heavily tied to equity market growth and the continual decline in risk free interest rates over the past 30 years. However, for the next period in markets, it is likely investors will not enjoy the same tailwinds given current valuations,” he adds.

“Expectations for traditional fixed income to buffer equity risk is diminished given global zero-risk free rates and high bond valuations. Traditional 60/40 type portfolios will face significant risk as bond and equity correlations increase.

“Therefore, in this scenario, it makes perfect sense that portfolio construction philosophies should be adjusted. This calls for increased allocation to alternative strategies to improve risk adjusted outcomes, setting up a potential golden era for liquid alternatives focused upon absolute returns to improve investor outcomes.”

Hood adds: “Larger institutions have always used a wide range of potential tools to meet uncertain future including alternatives and portfolio hedging.  For example, some astute superfunds have been increasing their internal capabilities around derivatives, introducing long volatility allocations and utilising defensive option strategies.

“However, for retail investors and financial advisers, the menu of available solutions has been relatively narrow.  This is understandable given the pre-requisites for daily liquidity, growing focus on passive SMA implementation and lower fees.

“The attraction of hedge funds and liquid alternatives is their ability to participate less or actively take advantage of negative market environments.  This absolute return mindset should focus on the reduction of drawdowns to allow for the power of compounding of returns.

“Luckily, there are absolute return focused strategies that fit nicely into the liquid alternative bucket, or as a partial substitute for bonds, and even a core portfolio building block for risk adverse portfolios that avoid added complexity of many opaque hedge fund strategies which can be easily understood by investors- both large and small,” says Hood.

For example, “All Weather” multi asset portfolios with a focus on protecting capital is one straight forward option.

“These portfolios which are typically long-only multi asset portfolios aim to perform within all potential market environments including recession/growth and inflationary/deflationary environments,” says Hood.

Cor Capital Fund’s “All Weather” approach is the top ranked multi-asset portfolio for 1 and 5 year returns according to Morningstar.

“Cor Capital’s approach to absolute returns does not utilise complex strategies which include short selling, borrowing or any bank credit risk instruments.  Instead we focus on providing a stable real return with an absolute return objective prioritising capital stability. The strategy avoids illiquidity premia and borrowing and instead focuses upon actively re-balancing its purposely designed portfolio to harvest volatility and provide a welcomed alternative source of return.”

Recent market volatility has presented ample opportunity for added return.

As of July 31, 2020, the Cor Capital Fund 1-year return net of fees was 11.62%.

Hood adds: “For investors seeking to reduce exposure to equity risk premia and gain higher rates of return than cash and bonds, all weather approaches that are designed for defending capital and withstanding market surprises, may be an attractive solution.

“Avoiding complexity in an increasingly uncertain world is a welcome relief.”

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The Cor Capital Fund (the “Fund”) is a multi-asset real return fund with an absolute return objective. The Fund aims to deliver attractive real returns (well above Australian inflation, net of manager fees) while aiming to avoid negative returns over any 12-month period (in all investment environments).

The Fund sits in the top decile over one, three and 5-year timeframes, and on Morningstar’s Australia ‘multi asset – balanced’ database of 132 funds, the Cor Capital Fund was the number 1 performer over both 1 and 5 years, number 2 over 3 years, as at 31 May 2012.

According to SQM Research “the Cor Capital Fund is a differentiated strategy within the Multi asset real return and Alternatives universe of funds”, and notes its “analysis pointed to strong defensive characteristics in the face of extreme equity tail risk.”

The Fund’s philosophy has counterparts with the “all weather” style of investing (including ‘risk parity’), and more closely with the “permanent portfolio” style (popularised by the influential US financial commentator Harry Browne). Cor Capital has enhanced its own take on this philosophy over many years, with additional focus on harnessing volatility being one example.

The Fund is relatively unusual in the Australian context as it has distinct structure of limiting investment to four broadly weighted asset sectors: Large cap Australian equities, precious metals, Australian bonds and Australian cash.

SQM Research states: “The very experienced portfolio management team of Davin Hood (Managing Director and Portfolio Manager) and Tom Rachcoff (Executive Director and Portfolio Manager) strongly believe in the strategy. They have more than 50% shareholding in the company and are co-invested in the Fund, providing a powerful alignment of interests with investors.

“The Fund’s investment philosophy can be described as unconventional and contrarian. It exhibits a ‘very modest view of the value of forecasting’ as the Manager puts it. The strategy design is subjective while its implementation is largely objective via quantitative models.  The Manager believes that asset class returns are largely driven by changes in the expected rate of economic growth and inflation. This is not an unconventional view. What is unconventional, particularly amongst active absolute return fund managers, is the belief that changes to such expectations are uncertain and unpredictable for practical investment purposes.

“The Fund has displayed strong performance across all time periods when compared with the peers. The relative outperformance has been more significant in recent years,” notes SQM Research.

SQM Research notes the Fund’s 1-year performance (to April 2020) has been notably strong.

Over the twelve months to April 2020, the Fund returned 9.71% (after fees) compared to 2.17% for the benchmark (CPI in this case). This is an outperformance of 7.55%.

The Fund has a consistent track record with SQM Research noting “it has outperformed its benchmark (CPI) in 98% of rolling three-year periods since its inception.”

Davin Hood, founder of Cor Capital, commented the Fund was established to meet a demand from investors with a ‘keep me wealthy’ mindset.

“Reliable medium-term investments with liquidity are difficult to find. The Fund is designed to be a smooth ride under a wide range of market conditions. It is an expressly ‘all weather’ investment vehicle ideal as a core holding in most portfolios. This explains why we don’t forecast prices or specific outcomes; we focus on asset dynamics instead, like volatility, and big picture risks such as inflation or growth surprises. One of the only things we rely on is the consistency of the human response given certain market conditions, of which there are relatively few,” says Hood.

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[1]  as at Apr-2020.

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