Managed Funds 1st Quarter Distribuition

Whether it has done well or otherwise, I'm wrapped with the funds performance for my needs to date. But judging by the feedback here, there's plenty of people concerned about the recent volatility in the unit price, let alone volatility in the share market. I'm not so worried about this quarter's distribution, I was asking why the theory about NavTrade doesn't seem consistent with the way the fund performs in certain market conditions.

 

According to this link
2005 2006 Market Performance

the S&P/ASX200 accumulation index was 24.1% last financial year.

Altho the NI fund is measured against the S&P/ASX200 price index (which by the look of it was 18.1% last financial year).

There were a number of funds that performed in the mid 20%'s last year...

So you could say NI underperformed the market. But on the other hand it produced strong income distributions in a market for which it is not theoretically suited (i.e. a lower volatility market). Will we see better performance in a more volatile market...time will tell.

Cheers
N.

 

I have spoken to Therese at Navra this am - distribution for aust. retail fund is 2.2cents per unit.

 

Whats that in a percentage? About 2%?

 

To save us all contacting NavraInvest, has anyone already heard what happened with the US Fund Distribution?

 

No?

Ok......I just rang.

US Distribution will be 1.1 cents per unit.

 

Now where's the Fun, Suspense, Rumour and Gossip possibilities in that scenario

 

Hi, Sim,
To save overloading the Navra switchboard with the same enquiries at this stage each quarter, why is it not possible for the distribution rates to be published 'first' on this website by someone from NavraInvest?
I was under an impression that this site was in some way connected to the Navra group.
Can you please clarify, Sim?
Thanks
Jayar

 

Sim,

The distribution has no relationship at all with the fund's performance for the quarter. Why do you look at the distribution as a measure of its performance? Its performance is simply calculated. Take the opening unit price and compare it to the closing unit price. Did it beat your cost of capital and did it beat the ASX200 benchmark index? How much it pays as a distribution is in no way correlated to its performance over the period.

Cheers,
Michael.

 

Sim,

If you give me $100K I promise to pay you a 20% distribution each year for four years! I'll pocket the $20K left over and you'll be very happy right.

You can't look at the distribution as a proxy for performance. Basic financial modelling suggests performance is entirely a factor of actual return achieved over the investment period. The distribution is not the return, it is a payment of funds out of the investment vehicle. You must look at actual return if you are to measure the performance of your investment vehicles dispassionately.

I like a nice big distribution too, but this period its coming out of retained earnings, not out of profit over the period. The fund has made a loss and is chewing into its equity to meet its distribution objectives.

I like the fund too, but not because of the size of its distributions. I like it because its been making me money. i.e. Its been beating my cost of capital over the long term. This period it cost me money, it was a very BAD period. But hey, I've got a long term investment horizon so take the good with the bad. But if it keeps losing me money I'll be forced to re-assess it as an investment option.

Cheers,
Michael.

 

Sim,

This is the number I'm wating on too. If I use your estimation and add back the 2.2c distribution then the actual performance numbers look like this:

Opening value: 1.0947
Closing value: 1.0967 (1.0747 + 0.0220)

Return for the period: 0.18% (0.73% annualised)

Now that at least is a positive return which is more than I was stating previously. I haven't tracked the closing unit price for a few days as I've been on a residential, but a positive return is a better outcome than I was anticipating for a while there.

But, it still doesn't beat my cost of capital. I'm fully leveraged at 100% borrowed funds, at an average cost of capital of 7.1% pa.

If I look at my return for the period it works out as follows:

Opening value of investment: $570,676.96
Closing value of investment: $571,719.58
Investment profit over the period: $1,042.62

Interest charge over the period: $10,272.19

Net investment profit over the period: -$9,229.57 ($1,042.62 - $10,272.19)
Net return for the period: -1.61% (-6.46% annualised)

So, in Q1 2007 my investment return, net of interest charges, is -1.61% or -$9,229.57.

Even if I hadn't borrowed any money, I'd still be dissappointed in a 0.73% annualised ROI. That's below the risk free rate of return achievable on government bonds. I take on extra risk by investing in equities in anticipation of extra returns. Its just that the extra risk is a double-edged sword. This quarter it didn't pay off and I got burnt. But so far, I'm still ahead of my personal cost of capital and am very happy with my Navra performance to date.

You've got to learn to take the good with the bad.

Cheers,
Michael.

 

Everything Michael said in his (second) last post is 100% factually accurate. He beat me to the publish with his very last post.

You can look at distribution as a proxy for performance, but it would be a very poor measure for the Navra fund imo. The distribution appears to be a number around the arbritrary 2.5% mark (10% income p/a) +/- some topping based on the funds performance for the quarter; chosen by one of the fund administrators based on the funds stated goals. The distribution simply comes out of total fund value at end of quarter as MW indicates. A very good measure of performance would be the unit price! (At all times this is the best measure)

I believe the VAMI accounting measure is used for the fund, but I am certain that at any one time the unit price represents total value.

Total fund value is not intangible, unless you are of the mind that you never have a loss or profit until you sell, which is simply baloney anyhow. There was a fund manager who repeated the wonderful cliche 'It's not a loss until you sell' as he held Enron all the way down (From 'Trend Following' by M. Covell). Using the ATO's definition of a loss or gain is not a good measure either. Telstra share holders pay tax on their divs as their shares falls in value.

Sim I can't quite work out from what you wrote whether you are agreeing with MW esentially and arguing the same thing at cross purposes, or you don't understand the nature of where your distribution is coming from. The distribution is coming out of fund value (unit price), whether thats cash holdings or whatever, how the fund value was increased (trade or hold or arbitrage or fixed interest or...) or lowered is of no relevance to the unit holders eventual outcome. There are issues such as franking credits and other tax matters which might be of concern to the fund, but they really aren't to the unit holder who's only concern should be the unit price.

I think we will discuss this further perhaps Sim, I agree with MW if he is saying that he is thinking 100% CG and you are thinking 100% income though. Income is very much a subset and dependant on CG! You can convert CG into income easy enough (- buy/sell spread) but good luck doing that the other way round as a fund investor. MW's example of give him 100k and he will pay you 20% distributions (guaranteed!) is a bit extreme, but a useful enough example perhaps, income doesn't grow on trees after all.

Because our brains are very bad at thinking at things like this I was trying to come up with a good analogy, the best I can do is this: Perhaps it's best to think of the Nav fund as a buy and hold fund, except speeded up. The only way your unit value will ever go up is CG which comes from share appreciation and divs and money earnt on cash holdings (no short positions, hedging.. just plain vanilla share appreciation). I think perhaps the mech trading idea could be confusing some issues.

Anyhow more food for thought hopefully

 

Fair cop gov'ner.

I intentionally use colourful language to try and interject some drama into the discussion. Might need to scale it back a bit... Of course, I personally am still delighted (oops maybe too colourful) with my Navra performance to date! I just like to paint as accurate a picture of performance as possible and not get too hung up in the self-validating spin that we can fall victim to if we're not vigilent. I see this particular period as an sub-par one and would like to paint that picture accurately.

I use annualised numbers not to project a hypothetical annualised outcome, but to have a common base of reference with such things as my annual interest cost. I'm not suggesting that these annaulised performance numbers are what you can anticipate out of the fund in any given 12 month period.

I too enjoy the discussion and have learnt quite a bit out of it, particularly around the terminology employed. I'm a simple man and don't normally get too hung up on whether its a capital gain or capital growth...

Cheers mate,
Michael.