The enemy within

6 Aug 2025 - Canopy Investors

Human beings are hardwired for survival, not for investing. The psychological traits that helped our ancestors survive in tribes and navigate danger now often hinder our ability to build long-term wealth.

6 Aug 2025 - The enemy within

By: Canopy Investors

The enemy within

Canopy Investors

July 2025

"The investor's chief problem -- and even his worst enemy -- is likely to be himself."
Benjamin Graham, 1949

Human beings are hardwired for survival, not for investing. The psychological traits that helped our ancestors survive in tribes and navigate danger now often hinder our ability to build long-term wealth. At Canopy, we believe managing our own behavioural biases is as fundamental to our investment process as our rigorous quality assessment or valuation discipline.

Buy high, sell low!

Investment returns and investor returns are not the same thing. Markets have historically rewarded patient capital, but most investors fail to capture these returns due to poor timing decisions, a phenomenon known as 'the behaviour gap'. It occurs because investors systematically buy after prices have already risen and sell after they have fallen, transforming market volatility from a potential opportunity into a source of loss. Understanding and defending against this dynamic is crucial for long-term wealth creation, as even small behavioural penalties compound dramatically over time.

The behaviour gap cycle ^{Source: The Behaviour Gap, Carl Richards.}

This pattern has been consistently documented in studies of investor behaviour. As noted in Chapter 4, DALBAR's long-running analysis found that over the last three decades, the average US equity fund investor has underperformed the S&P 500 by 3-4% annually, primarily because of buying high and selling low during volatile periods (2022). Morningstar's Mind the Gap study (2023) has reached similar conclusions, finding that the average dollar invested in funds earned a 10-year return to December 2022 that was 1.7% less annually than the average underlying fund.

Perhaps the most striking example comes from one of history's most successful fund managers. Peter Lynch managed the Magellan Fund at Fidelity Investments between 1977 and 1990, producing an annualized return of 29.2%. Yet it has been reported that the average investor in his fund made only 7% per annum (Jakab, 2016). Despite having access to exceptional investment performance, poor timing decisions cost investors the majority of their potential returns.

The behaviour gap tends to be most pronounced during periods of market exuberance or stress, as illustrated in Figure 2. In the lead-up to the GFC in 2007, equity fund inflows remained strong despite mounting economic risks. As equity markets declined through 2008, fund outflows accelerated dramatically, reaching their most negative levels during 2008-2009. As it turned out, this was actually a great buying opportunity. Crucially, outflows continued even after markets began recovering, with flows remaining negative through 2011 despite substantial market gains during this period. This timing pattern illustrates how investor behaviour often lags market turning points, leading to suboptimal entry and exit decisions.

Relationship between fund flows and market performance ^{Source: Investment Company Institute, Canopy Investors.}

When instincts backfire

To cope with the daily information overload, our minds rely on mental shortcuts called heuristics. While these shortcuts serve us well in many aspects of life, they can also work against us. Several behavioural biases are particularly problematic for investing:

Confirmation bias causes us to seek information that supports our existing beliefs while ignoring contradictory evidence. An investor convinced of a company's potential might focus on management's optimistic guidance while dismissing customer complaints, executive departures, or deteriorating financial metrics.
Overconfidence tricks us into believing we can predict outcomes with greater certainty than we actually can. This might manifest as an investor who has enjoyed success with a few stock picks becoming convinced they can time market cycles, leading them to make increasingly concentrated bets or using leverage.
Loss aversion makes losses feel more painful than equivalent gains feel pleasurable. This asymmetry leads to seemingly irrational behaviour: holding losing positions for too long (hoping to 'break even') while selling winners too quickly (to 'lock in gains').
Hindsight bias convinces us we 'knew it all along' after events unfold, preventing us from learning from our mistakes. An investor might remember being 'cautious' about a failed investment when their notes actually show they were highly confident at the time of purchase, preventing honest post-mortems that could improve future decision-making.
Groupthink emerges when teams prioritise harmony over critical thinking. Investment committees might reach consensus not because the analysis is sound, but because challenging the prevailing view feels uncomfortable.
Recency bias leads us to overweight recent events when making decisions. Investors often chase last year's best-performing asset class assuming recent trends will continue indefinitely. This backwards-looking approach systematically buys high and sells low, as yesterday's winners often become tomorrow's laggards.
Herding makes us feel comfortable following the crowd, even when the crowd is heading toward a cliff. The Dutch tulip mania, the South Sea Bubble, and the housing bubble all shared a common thread: rational people making irrational decisions because 'everyone else was doing it'.

Herd mentality ^{Source: Tom Fishburne.}

These biases often work in combination, amplifying their individual effects. Recency bias might lead an investor to chase last year's hot sector, while confirmation bias ensures they only read bullish research, and overconfidence convinces them to make an oversized bet. When a reversal eventually comes, loss aversion prevents them from cutting losses quickly, and hindsight bias ensures they learn nothing from the experience.

Our approach

The late Nobel laureate Daniel Kahneman reached a somewhat disheartening conclusion at the end of his influential book 'Thinking, Fast and Slow': there is little we can do as individuals to prevent behavioural biases from influencing our decisions. He considered that objectivity is easier when evaluating others' decisions than our own; "it is much easier to identify a minefield when you observe others wandering into it than when you are about to do so."

At Canopy, we have adopted team and rules-based processes to minimise individual biases, with our flat structure serving as the foundation:

Institutionalized dissent: We have deliberately built structured debate into our process, recognising that it is often easier to spot flaws in someone else's reasoning than in our own. Every position in the Fund has a 'secondary analyst' whose primary task is to act as devil's advocate to the primary analyst's view. This structure reduces the prospect of groupthink and confirmation bias by forcing alternative perspectives into every investment discussion.
Independent conviction ratings: Each team member maintains independent views on stocks, and these views directly impact portfolio construction. Ratings and comments are recorded and reviewed when performing post-mortems on positions, increasing accountability among all team members, reducing hindsight bias, and accelerating learning from both successes and failures.
Pre-mortem analysis: Before taking positions, we routinely perform pre-mortems, where we imagine our thesis is incorrect a couple of years into the future and consider what might have gone wrong. This exercise reduces groupthink, confirmation bias, and overconfidence by forcing us to actively consider how our thesis might be wrong.
Multiple valuation approaches: We use several valuation methodologies to avoid the pitfalls of relying on simple multiples or heuristics alone. Additionally, our valuations are expressed as ranges rather than point estimates, helping to reduce overconfidence, and acknowledging the inherent uncertainty in any valuation exercise.
Disciplined selling framework: To combat loss aversion, we maintain strict sell discipline. We are particularly vigilant about selling stocks where there has been material 'thesis creep' - gradual changes to our original investment rationale that often signal we are rationalising poor performance. In our experience, these situations frequently become value traps. For high-quality companies, we more gradually reduce positions when valuation becomes the primary concern.
Variant perception: When investing in any stock, we work to identify our source of edge and how our view differs from the market consensus. Since markets are typically efficient, the best opportunities arise when we can disagree with the consensus while maintaining strong conviction in our analysis.
Systematic position sizing: We use a systematic tool that translates our quality and valuation assessments into suggested portfolio weights. As illustrated in Figure 4, higher-quality companies are allocated a substantially larger position size for any given expected return.¹ As these weights change daily with share prices (and less frequently with our fundamental assessments), we are prompted to dispassionately evaluate position sizes, helping to reduce the influence of recency bias and emotion.
Decision quality over outcomes: We seek to evaluate the quality of our decisions rather than judging success solely according to outcome. This distinction helps us learn from both wins and losses by focusing on whether our analysis was rigorous and our reasoning sound, rather than results that may reflect luck or short-term market movements.

Weight to return % ^{Source: Canopy Investors.}

While no process can eliminate mistakes entirely, ours is designed to reduce the risk of material missteps and support more disciplined position sizing. We accept that we will make mistakes, but by identifying potential pitfalls before committing capital - not after - we improve our chances of avoiding them. The same behavioural traits that once helped humans survive can undermine investment decisions. Our process has been designed to help our portfolio succeed in spite of them.

Funds operated by this manager:

Canopy Global Small & Mid Cap Fund

News & Views: One final round of rail consolidation?

5 Aug 2025 - 4D Infrastructure

The North American freight rail sector is a critical pillar of the US economy and one of the largest and oldest sectors in the global listed infrastructure universe.

New Funds on Fundmonitors.com

4 Aug 2025 - FundMonitors.com

Here are some of the latest additions to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research,...

4 Aug 2025 - New Funds on Fundmonitors.com

By: FundMonitors.com

New Funds on FundMonitors.com

Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights.

India Avenue Equity Fund - Listed Class

Inception date:	March 2025	Minimum initial investment:	AU$0
Strategy:	Equity Long	Distributions:	Annually
Geographic mandate:	India	Management fee:	1.10%
Investor type:	Retail	Performance fee:	10.00%

View Profile

Indian Pacific Fund

Inception date:	January 2018	Minimum initial investment:	AU$250K
Strategy:	Equity Long/Short	Distributions:	Annually
Geographic mandate:	Australia/Global	Management fee:	1.00%
Investor type:	Wholesale	Performance fee:	20.00%

View Profile

Blackwattle Global Quality Fund

Inception date:	May 2024	Minimum initial investment:	AU$25,000
Strategy:	Equity Long	Distributions:	6 Monthly
Geographic mandate:	Global	Management fee:	0.90%
Investor type:	Retail	Performance fee:	0.25%

View Profile

VanEck Global Listed Private Credit (AUD Hedged) ETF

Inception date:	January 2024	Minimum initial investment:	AU$0
Strategy:	Private Debt/Mortgage	Distributions:	Monthly
Geographic mandate:	Global	Management fee:	0.65%
Investor type:	Wholesale	Performance fee:	Nil

View Profile

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Hedge Clippings | 01 August 2025

1 Aug 2025 - FundMonitors.com

According to economists, market junkies and the media, all or most of whom incorrectly thought there would be a rate cut in July, this week's June quarter inflation number makes a rate cut of 0.25% in August a certainty.

1 Aug 2025 - Hedge Clippings | 01 August 2025

By: FundMonitors.com

Hedge Clippings | 01 August 20256

According to economists, market junkies and the media, all or most of whom incorrectly thought there would be a rate cut in July, this week's June quarter inflation number makes a rate cut of 0.25% in August a certainty.

Most of them reiterated that they thought the RBA should have acted in July rather than waiting five weeks for more data. That data, in the form of the bank's preferred "trimmed mean"inflationary measure, which came in at an annualised 2.7%, continued a downward trend, and was the lowest number since December 2021.

So you'd have to suggest a rate cut the week after next would be a fait accompli. Except that the RBA are, by nature, cautious folk, embodied by their stated strategy of "easing monetary policy in a cautious and gradual manner", and there remain a couple of unknowns out there.

At home, there's a risk that inflation picks up in the September and December quarters as the various energy subsidies disappear.

Globally, there's the uncertainty around the economic and inflationary effects of Trump's tariffs, and his "big beautiful bill". US Fed chief Jerome Powell was sufficiently uncertain overnight and so kept US rates on hold, where they've been since last December, even though he kept his options open about the possibility of a cut in September, subject to the data.

Meanwhile, back to those tariffs. It appears that for the time being, Australia has "escaped"with a tax rate of just 10% on imports into the US, a far cry from Canada's rate of 35%. Of course, knowing Trump this could change, but for now it seems that Albo's strategy of keeping a low profile could be working.

Then again, it might not be Albo's strategy that's keeping Australia out of Trump's firing line. Maybe the Donald has other more pressing matters to deal with. We'd hope that's the case.

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The Evolution and Benefits of Equity Income Funds in Australia's Growing...

1 Aug 2025 - Merlon Capital Partners

Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades.

1 Aug 2025 - The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market

By: Merlon Capital Partners

The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market

Merlon Capital Partners

July 2025

.Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades. Australia's unique dividend imputation system means investors can successfully derive meaningful income as well as capital growth from holding Australian equities. Equity income strategies regularly make up a large component of the equity allocation for income-focused clients who seek a more defensive asset mix.

Equity income funds have evolved significantly over time, beginning in the 1990s, with MLC and Colonial First State (now First Sentier Investors) launching equity income products. These initial products were not specifically focused on paying a regular, smoothed, tax-effective income but rather designed to grow capital before retirement to provide income once in retirement. The mid-2000s saw the equity income fund reimagined, designed specifically to meet retiree's key objectives - income generation, volatility management and capital growth over time. A number of managers developed products to meet these objectives at this time.

The wake of the GFC saw growing recognition of the importance of total return generation from income, limiting the need to sell down holdings during market downturns. As a result, the equity income space continued to grow and through the 2010s, various managers launched new income funds, often with full market exposure. Additionally, with the rising popularity in passive investing through the 2010s, income-focused ETFs also emerged from leading ETF providers with the goal of generating income that exceeds the dividend yield offered by the broader market. With an aging population, the addressable market for equity income funds is only growing. Whilst not all equity income funds remain in existence today, there are a variety to choose from with over 15 Australian fund managers offering a product in this space.

The need for regular income in retirement is well known and there are various ways to meet cashflow requirements. However, many of these tend to overlook the particularities of retirement. While fixed income products can help to meet an income objective, they fail to provide capital growth to protect against the impacts of inflation. A diminishing capital value on a real basis is inconsistent with the desire of many retirees for a growing capital base for both peace of mind and to leave an inheritance. Another option is to pursue an equity strategy centred solely on capital growth and simply selling down holdings when cashflow is required, rather than investing in income-generating investments. Yet, this ignores the fact that retirees are much more impacted by periods of drawdown than other investors, especially early in their retirement, amplified by their obligation to draw out from accounts when in pension phase. The GFC market crash and COVID-19 selloff in early 2020 demonstrated the serious consequences of needing to sell at an inopportune time and its long-term impact on total return. Skewing the components of equity total return to income removes the need to sell investments to raise cash when required. Proposed alternatives to equity income also ignore the value of franked dividends, which for retirees in pension phase present significantly more value than unfranked income or capital gains. Australian equity income strategies, when structured and executed appropriately, can provide strong total returns over time through attractive dividend yields and without sacrificing capital growth.

The Merlon Australian Share Income Fund was launched in 2005 and led the innovation of contemporary equity income funds. It was the first product of its kind, aiming to provide above-market income with franking, grow capital over time with lower risk than the market. The non-benchmark portfolio has a high active share, blending well with both passive and direct share portfolios which are typically overweight large cap stocks. The Fund delivers above market income, the majority from franked dividends, paid monthly and has demonstrated strong risk-adjusted returns over multiple time periods. The strategy features a risk reduction overlay to insulate the Fund during periods of drawdown whilst retaining 100% of the franked dividend income generated from the underlying portfolio.

Merlon's investment philosophy is based on the idea that behavioural biases create opportunities, even in markets considered "efficient". In particular, Merlon focuses on investing in companies where the market has become overly pessimistic, investing in undervalued companies with a focus on downside/bear case valuation to preserve capital. Merlon believes that buying companies when the market is overly pessimistic at low end of valuation range should result in growth of the capital base. Companies are valued on the basis of sustainable free cash flow, not dividend yield alone which is often a poor indicator of future performance and can lead to destruction of capital value. History has shown that investing in quality companies with sustainable free cash

Funds operated by this manager:

Merlon Australian Share Income Fund , Merlon Concentrated Australian Share Fund

This material has been prepared by Merlon Capital Partners Pty Ltd (ABN 94 140 833 683 AFSL 343 753) (Merlon), the investment manager of The Merlon Australian Share Income Fund (Fund). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 | Fidante Partners Services Limited ABN 44 119 605 373 AFSL 320505] (Fidante) is a member of the Challenger Limited group of companies (Challenger Group) and is the responsible entity of the Fund. Other than information which is identified as sourced from Fidante in relation to the Fund, Fidante is not responsible for the information in this material, including any statements of opinion.It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable to your circumstances. The Fund's Target Market Determination and Product Disclosure Statement (PDS) available at www.fidante.com should be considered before making a decision about whether to buy or hold units in the Fund. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Past performance is not a reliable indicator of future performance. Merlon and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, Merlon and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties. Investments in the Fund are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Accordingly, the performance, the repayment of capital or any particular rate of return on your investments are not guaranteed by any member of the Challenger Group.

Performance Report: Insync Global Capital Aware Fund

31 Jul 2025 - FundMonitors.com

The Insync Global Capital Aware Fund saw mixed performance in June, with Veeva Systems contributing positively while an underweight position in Nvidia detracted. Insync remains confident in its diversified portfolio and continues to favour...

Performance Report: Argonaut Natural Resources Fund

31 Jul 2025 - FundMonitors.com

The Argonaut Natural Resources Fund rose by +0.70% in June, outperforming the S&P/ASX 300 Resources TR benchmark by +2.57%. Since inception in January 2020, the fund has returned +24.90% per annum, an outperformance of +18.47% relative to...

Unemployment's up. Is it just noise or a sign of things to come?

31 Jul 2025 - Pendal

June's unemployment rise should all but seal a June rate cut. Only a massive quarterly inflation surprise at the end of July would stop it, writes Pendal's head of government bonds Tim Hext.

31 Jul 2025 - Unemployment's up. Is it just noise or a sign of things to come?

By: Pendal

Unemployment's up. Is it just noise or a sign of things to come?

Pendal

July 2025

THE unemployment rate jumped to 4.3 % for June - the highest rate since late 2021.

Job growth was a very tepid 2000. Hours worked fell by 0.9%.

In trend terms - which we prefer over the more volatile, seasonally adjusted data - job growth was 22,800 while unemployment rose from 4.1% to 4.2%.

Unemployment, June 2025 (seasonally adjusted vs trend):

Source: Australian Bureau of Statistics

June was a relatively clean month - no elections or weather events - and the Bureau of Statistics offered no one-off excuses for the poor outcome.

The Reserve Bank expected unemployment to end 2025 at 4.3%, having revised it up from 4.2% in May.

Interestingly their forecast at the start of the year was 4.5%, but they lost patience as results earlier in the year were strong.

Noise or new trend?

The obvious question is whether this is just noise or the start of a new, upwards trend.

Every month one eighth of the survey is rotated as respondents are surveyed over eight months - so there is some impact or noise to consider.

However, as students of statistics will know, since each sample size is 3000 households (24,000 in the survey), the impact should be small.

We won't get a breakdown by profession until the quarterly numbers, but rapid growth in non-market jobs (mainly education and healthcare) has masked softer market job growth for some time.

There are signs this non-market job growth may be slowing, so unemployment may drift a bit higher into the end of year.

However, forward indicators such as job vacancies and employment indicators in NAB's monthly business survey, do not suggest a sharp or rapid rise.

August rate cut looks likely

The Reserve Bank next meets on Tuesday, August 12.

Today's data should all but seal a rate cut - only a massive quarterly inflation surprise at the end of July would stop it.

The Q2 wage data and the next Labour force survey do not come out till after the meeting.

The market has two-and-a-half cuts by year end and a terminal cash rate just above 3%.

We still think bonds are range-bound by this data.

Together with bonds sitting at the cheaper end of the range, we have added some duration to our portfolios.

Funds operated by this manager:

Pendal MicroCap Opportunities Fund , Pendal Global Select Fund - Class R , Pendal Sustainable Australian Fixed Interest Fund - Class R , Pendal Focus Australian Share Fund , Pendal Horizon Sustainable Australian Share Fund , Regnan Credit Impact Trust Fund , Pendal Sustainable Australian Share Fund , Pendal Sustainable Balanced Fund - Class R , Pendal Multi-Asset Target Return Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Performance Report: ASCF High Yield Fund

30 Jul 2025 - FundMonitors.com

The ASCF High Yield Fund rose by +0.62% in June. Since inception in March 2017, the fund has returned +8.12% per annum, an outperformance of +6.03% relative to the Bloomberg AusBond Composite 0+ Yr benchmark which has returned +2.09% on an...

Performance Report: Insync Global Quality Equity Fund

30 Jul 2025 - FundMonitors.com

The Insync Global Quality Equity Fund has returned +12.73% per annum since inception in October 2009, an outperformance of +0.93% relative to the All Countries World (AUD) benchmark which has returned +11.80% on an annualised basis over...

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6 Aug 2025 - The enemy within