Clover Portfolio Update (the COVID-19 edition)

Credit: Photo by Sandro Capatti/Shutterstock: Daily life during the Coronavirus outbreak, Parma, Italy

Key Take-outs:

  • The stellar returns of 2019 were erased in full by one of the fastest (and possibly shortest) bear markets in history, with the bellwether US S&P 500 index falling 35% in the four weeks between late Feb and late March as market panic spread worldwide.
  • After the punishing drawdown, markets, particularly the US, have recovered strongly, with the S&P 500 index gaining 23.6% since its late March lows.
  • The Australian sharemarket has been less responsive, weighed down by the banking and listed property sectors.
  • The S&P/ASX 200 index fell 39% in the same late Feb to late March period, but has only recovered 18.5% to date since the March trough.
  • Despite the falls of the last three months, the longer-term return picture remains remarkably robust.
  • Clover’s positioning to favour overseas versus Australian shares has cushioned our portfolios relative to more traditional asset allocations.

To say it’s been one hell of a ride these past few weeks is an understatement.  You don’t see market volatility like this very often, and for many it probably felt like being caught in the open by a Category 5 cyclone with nowhere to hide.

Amidst the mayhem of February and March there have, however, been some important lessons, provided you’re prepared to learn from the experience. To do so, read on.

A Market Fall for the Ages

Somewhere out there a 30 year share market veteran is probably still slightly dazed and confused, wondering what the hell just happened.

Up until January this year everything seemed to be ticking along just fine. 

2019 had been an absolute cracker of a year, with the bellwether US share market S&P 500 index posting a return of 31.5% for the year. Meanwhile here in Australia the S&P/ASX 200 index had done 23.4%. 

Both were waaay above the 7% – 8% that might be coded into many an investment model as a long-term annualised return expectation. But you take it when it’s there to be taken. 

As we now know, a non-sentient virus with no concept of global finance, and visible only with the aid of powerful electron microscopes, crashed the party. And how!

The SARS-CoV-2 virus, brought to the world’s attention in December by reports emanating from Wuhan, China, quickly spread globally, first to Western Europe and Iran. Patient One was diagnosed in the US on January 20 and here five days later. 

On February 1 there were fewer than 12,000 reported COVID-19 cases worldwide. By 1 March that number stood at 87,000. By 1 April it was some 730,000. The most recent number is now 4.4 million. This, below, is mathematical compounding on a fearful scale.

Source:  Our World in Data

Unfortunately for investors, there’s nothing financial markets hate more than fear and uncertainty. COVID-19 delivered both in spades.

In the space of four terrifying weeks between late February and late March the S&P 500 fell some 35%, erasing the gains of 2019. The falls here were even more gut-wrenching, with the S&P/ASX 200 shedding 39% in the same period.

It was, quite simply, the fastest bear market (a fall of 20% or more) since the Black Monday crash of 1987, when some 23% was lost in a single day’s trading.

To put the Feb-March falls into perspective, the last major share market fall even close by comparison occurred during September and October 2008, during the depths of the Global Financial Crisis. Between the start of September and the end of October the S&P/ASX 200 fell some 22%. Across the entire 61 days. 

Yeah these last few weeks, culminating at the back end of March, have been brutal. No doubt about it.

A Ray of Hope Shines Through the Gloom

Just as it looked like share markets globally were about to nosedive into oblivion around 21 March, unprecedented government intervention globally sparked a phenomenal relief rally. 

The S&P 500 index rose an astonishing 17.5% in three trading days toward the end of the month, to be now up some 23.6% off its lows. Here the S&P/ASX 200 is up some 18.5% since it bottomed out.

All this hot money being released from equity markets had to find ‘safe havens’ to ride out the COVID storm. Unsurprisingly, bond markets were the willing recipient, with the S&P US Treasury Bond index up 8.02% between 1 January and 30 April. Here the similar S&P /ASX Australian Government Bond 0+ index is up 3.5% in the same period.

Which should, in case it hasn’t already, confirm the importance of asset class diversification, a topic we’ve harped on about ad nauseum since Clover’s launch.

Speaking of, how exactly did Clover’s portfolios perform through the worst financial market since the GFC? 

Well, let’s have a look see.

Clover Core Portfolio Option Net Returns to 30 April 2020

The table below shows the model portfolio* after-fee returns for Clover’s core options for various periods to 30 April 2020.

Clover Core Portfolios:

Periods to
30 Apr 2020
Jan – Apr 20 -1.7%-2.5%-5.6%-7.7%-10.3%
1 Year 1.4%2.6%0.5%-1.1%-3.3.%
3 Years (p.a.)3.2%5.2%5.3%5.3%4.9%
* The above returns are model portfolio returns for Clover’s core investment options, based on each option’s benchmark asset allocation on an assumed $50,000 portfolio with Clover fees incorporated. Individual client portfolio pre-tax returns may differ from the returns depicted above depending on portfolio specific cash-flows over the period, including the timing and size of any additional contributions or partial withdrawals over the period. 
** Since inception portfolio returns are from 1 February 2016.

As the table above shows, all of Clover’s Core portfolios have experienced a fall since the start of the year, but thankfully nowhere near as bad as the share market itself. It is also apparent that the worst falls were, unsurprisingly, in the options with the largest exposure to shares.

What needs to be considered, however, is that as the time horizon lengthens, the results start to invert. For the year to the end of April only the Growth and High Growth options had fallen, and even then only by 1.1% and 3.3% respectively.

The numbers that really matter are the ones in the last two rows. For the three years to 30 April all option returns were positive. 

Most hearteningly, and despite the incredibly sharp falls of Feb-March, the returns for the four years and two months since our Core portfolios were first formed were all significantly positive, and very close to each option’s long-term expected returns.

When you hear investment experts talk about holding for the long-term, this is the reason why. Over the longer-term you should be rewarded for taking more risk, but there is no obligation on the market to deliver you suitably positive outcomes in a timeframe of your convenience.

As we’ve said before, and it’s worth repeating again, higher expected returns from the share market compared to other asset classes exists precisely because of the unpredictable nature of share prices in the short-term. No occasional emotional pain, no long-term gain.

Cash is Best?

Okay, so we get this question quite a bit; why wouldn’t you have sold everything just before the market fell and moved to cash instead?

Two problems. First, no one, and we mean no one, can predict market tops and troughs before they happen.  If such an individual exists he or she would make Jeff Bezos look like a pauper by comparison in no time at all. So scratch that idea.

Next, say you got lucky and did move to cash just before the fall. Now you have a new problem. Sitting in cash is an awful idea. How awful? We’ve updated our High Interest Savings Account chart to the end of March and, well, see for yourself…

The blue line is the headline High Interest Savings Accounts rate, as published by the Reserve Bank of Australia. It sits at 1.30% at present.

That’s not what you’ll keep however. After adjusting for both inflation and tax (at a 37% marginal tax rate) HISAs haven’t delivered a positive return in about four years.

You sure you want the safety of a certain negative return?

Clover Socially Responsible Investing (SRI) Portfolio Option Net Returns to 30 April 2020

Turning now to Clover’s SRI portfolios, the table below shows the model portfolio* after-fee returns for Clover’s SRI options for various periods to 30 April 2020.

Clover SRI Portfolios:

Periods to 30 April 2020ConservativeModerateBalancedGrowthAggressive
Jan – Apr 20-3.2%-5.6%-9.4%-11.3%-13.5%
1 Year 2.1%2.6%0.2%-0.9%-3.0%
3 Years (p.a.)3.5%5.0%4.8%5.0%4.6%
Inception** (p.a.)
* The above returns are model portfolio returns for Clover’s SRI investment options, based on each option’s benchmark asset allocation on an assumed $50,000 portfolio with Clover fees incorporated. Individual client portfolio pre-tax returns may differ from the returns depicted above depending on portfolio specific cash-flows over the period, including the timing and size of any additional contributions or partial withdrawals over the period. 
** Since inception portfolio returns are from 1 January 2017.

Clover’s SRI options performed broadly in line with our Core options, as you would expect. After all, the differences between the two sets of portfolios are minor, with Australian and international share Exchange-Traded Funds having an SRI focus compared to the agnostic approach of the Core portfolios.

As our SRI portfolios are not as old as the Core equivalents, the three year numbers are a good comparator. These show that the SRI returns were within 0.3% p.a. of their Core cousins, a result largely explainable by the slight allocation differences between the Core and SRI portfolios in their exposure to Australian listed property (A-REIT ETFs).

How Do Clover Portfolios Compare?

Another question we often get is: How do Clover portfolios compare to alternatives out there in investment-land? 

Until recently we’ve been averse to answering, not because we want to avoid the issue, but because we felt we didn’t have a sufficiently long enough track record, across both Core and SRI portfolios, to engage in the “mine’s better than yours” banter that so dominates the investment landscape.

Now, however, with both Clover’s Core and SRI portfolios having at least three year returns, we have once again addressed the issue internally.

But to do so one has to compare apples with apples. 

That means finding an appropriate comparator that:

  • is not a superannuation fund (because we publish pre-tax returns);
  • has a similar suite of diversified investment options;
  • has been in existence at least as long as Clover, and ideally longer;
  • has broadly the same cost structure as Clover; and
  • critically, is highly regarded for its investment capabilities.

In short, if we’re going to be benchmarked, we wanted it to be against a comparator that we hold in high esteem. Not much point comparing Clover against the worst competitor in the race just to pump up our own tyres.

And that’s where things became tricky. Believe it or not, it was actually difficult to find a comparator that met all the above criteria. Possibly because most fund managers are obsessed with superannuation and don’t really give non-super investing the attention it deserves.

Ultimately, only one name stood out; Vanguard.

If you are invested in a Clover Core option, you probably hold at least one Vanguard ETF. We’ve used Vanguard in our investment portfolios since inception, and are a strong supporter of this powerhouse asset manager, the second largest in the world.

Vanguard created the world’s first index fund in 1975, and in doing so started a revolution that shifted the power dynamic from the Wall Street crowd to the Main Street average investor.

And if you’ve been with Clover since our earliest days you’ll remember that we featured Vanguard’s legendary founder, Jack Bogle, in our list of all-time favourite investment authors

So Vanguard it is then.

Vanguard has a remarkably similar set of investment options to Clover, but their diversified ETFs haven’t been around as long as we have. So we had to look at their managed funds, which are effectively the same strategies in a different ‘wrapper’.

Here’s where we hit a snag. We report our after-fee returns based on an assumed $50,000 in a Clover portfolio. Vanguard’s retail managed funds have a higher management fee than Clover, which would have disadvantaged Vanguard.

So we did something radically different. We decided to compare our Clover Core portfolios, available to any Australian with as little as $10,000 to invest, with Vanguard’s Wholesale diversified managed fund portfolios, available only to investors with $500,000 or more to invest. 

Their portfolios have a lower management fee than Clover, effectively handicapping our portfolios in the comparison. But we were prepared to back ourselves.

With more than three years of investment data but not quite five, we settled on the three year mark for comparison.

Then we crunched the numbers and held our breath.

The results are outlined in the chart below.

*Vanguard’s Conservative lines up with Clover’s Moderate portfolio.

Across every one of Vanguard’s four diversified investment options (they don’t have an ultra conservative portfolio like Clover does), Clover’s Core portfolios matched or bettered Vanguard’s.

We won’t lie. We were not just surprised. We were delighted.

Not just because we managed to achieve results similar or better compared to an organisation we hold in the highest regard. But because of the sense of vindication it provided.

Vindication that it is possible to build a world-class online investment solution with a friendly user experience right here in Australia.

That it is possible to give the average investor an experience that is otherwise reserved only for the wealthy. 

That “robo advice” can work in Australia, has worked in Australia, and has the potential to deliver so much to so many Australians who would otherwise go unserved.

We are humbled. We are grateful.

To all our wonderful clients who have, since 2016, taken a chance on a startup team coding late into the night and creating unconventional portfolios (a story for another day), this success is, quite literally, as much yours as it is ours. 

For all that has been, and for all that remains to be, we remain forever thankful.


This material is intended to provide background information only and does not purport to make any recommendation upon which you may reasonably rely without further and more specific advice. To the extent that this material contains advice: (i) this is limited to general advice only; (ii) has been prepared without considering your objectives, financial situation or needs; and (iii) because of this you should therefore consider the appropriateness in light of your objectives, financial situation or needs, before following the advice.

To the extent that this material contains any advice, we recommend that you do not act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.

Past performance is not a reliable indicator of future performance, and no representation or warranty, express or implied, is made regarding future performance.