Managed Funds 1st Quarter Distribuition

Actually - it's only a good measure when you consider it between two fixed points, ideally the start and end of quarter - or even more accurately between start and end of financial year. In between, the unit price includes accumulated trading profits and other income, which are then distributed at the end of the quarter (and fully at the end of year). The drop in unit price at the end of quarter can really confuse people as to the true performance of the fund - especially if they aren't taking distributions into account.

Try graphing unit price and you'll see how useless this is as a performance measure on it's own between arbitrary points in time.

I have no idea what the "VAMI accounting measure" is, but my understanding is that you are correct - the unit price should represent the total value of the assets currently held (including cash holdings), which will include yet-to-be-distributed profits prior to end-of-quarter.

No, you are right - there is a very real and tangible way of measuring total fund value - so that is not at question.

My point is that the GROWTH in value is intangible until realised. You can't eat capital growth !!!

The only way of accessing that capital growth is by borrowing against the equity through some mechanisms like a margin loan. This makes that growth SEEM more tangible - however it is not. The value of the underlying assets could drop and that capital growth could quite easily be eroded away to below what you paid for it. At this point, the margin lenders call you and ask for their money back. It is for this reason that I call it intangible. The only reason margin lending works is that you can make a basic assumption that the value will increase over time, and you have sufficient buffers in place to manage the exposure when they don't.

Vehemently agreeing probably

Mostly I think it's a disagreement about terminology - which I think is important because using the wrong terminology gives people the wrong impression about what's really happening with their investments.

Yes I understand completely, and I think I have illustrated that in many of my previous examples (you may not have read all those threads).

I just wanted to make it perfectly clear to people that there are two variables that impact on the movements in unit price. The first is the value of the underlying shares, which move as their share prices change, the second is the trading profits and other income that the fund accumulates over time.

It is ONLY this second variable which determines how far the unit price drops at end of quarter (ex distribution). And the first variable is ONLY affected by the value of the shares the fund holds at any given time. Of course, there are other minor variables such as expenses and franking credits and tax like you mentioned - but that mostly generally gets soaked up by the other income (franking credits and such just confuse things ).

The daily unit price is CALCULATED from the value of the assets the fund holds (and based on the number of units on offer), but the CHANGES in unit price are INFLUENCED by both the changes in value of the shares and by the trading profits and other income sources.

Why should it only be the unit price ?

If my only concern was unit price, then an average buy price of 1.1091 and a current unit price of 1.0857 should make me upset, but somehow the $100K+ in income I have received over that time makes me smile ?

Or perhaps you meant something else by the comment on the unit price focus ? (please discuss).

Of course it does. It grows on trees, in fields, in computers, in bread, in sweat and hard work, in lots of places. I give money to people, they use it to do things which make them money, they give me income in return. That's how investing fundamentally works!

At the end of the day, I think you'll find that the vast majority of people invest for the distributions. Only a very small percentage invest in funds for capital growth, and even fewer still leverage for this purpose. (I count myself in this group - although I use the Navra funds for a different purpose).

Of course. Unit value goes up as a result of an increase in the value of the assets the fund holds - which is made up of the value of the shares being held plus any cash, plus sundries. Not all the income comes from CG, but most of it does, through the fund realising profits as a result of that underlying growth.

I don't think anyone disputes that ... so I'm not sure what your analogy was designed to present ?

 

Yes, I have felt myself tending that way at times, so it is worth keeping things real - you're good like that

I like the use of real figures and percentages to compare with other funds over similar time period to determine whether things are on track or not.

For the record, I agree completely ... definitely sub-par, and I would like to see an improvement.

... and I'm a pedant who really hates the English language's ability to be so imprecise

As an educator, I find that getting people talking the same language really helps to prevent misunderstandings. The problem is that we need to agree on what that language is first

 

You really should only compare funds that invest in the same market (ie for the Navra AUS funds, that would be the ASX, and preferably the ASX200).

My comments about the CFS Global Resources fund were not a comparison with the Navra funds, more an example of what I would consider to be BAD performance.

NavraInvest usually do a quarterly update (usually sent with the distribution statement), and also have some information posted on their site, but it looks like that's a bit out of date.

 

I would be interested to hear how you adjust for distributions. I've seen how funds report their returns adjusting for distributions - but they tend to use the value of $X (usually $10,000) invested at the beginning of the period being considered - but I'd like to see how you adjust the unit price itself.

Wouldn't the unit price start to lose its meaning when adjusted like this ? Unless you plotted backwards I guess so that today's unit price equals the real unit price, and previous distribution unit prices are adjusted downwards to compensate for distributions ? I'd have to think through the math there.

Aren't you simply realising your returns by selling ? Which is exactly what I mentioned about growth being intangible ? You have to sell to realise it. Or is that not what you are illustrating here ?

But wouldn't the FUM drop by $10 due to the investor selling ? Not that it makes much different to the final result - but it still is a difference.

But what IS "profit" ? That's one of the points I make ... profit comes in a variety of forms, whether it is unrealised capital gain, whether it is income from dividends, or from trading profits or other activities, or whether it is distribution in hand to the unit fund investor, or what ? I think we need to have clear terminology to help people understand exactly what is being discussed. Is it my profit or the fund's profit ? And what does profit actually mean to me in real terms ? Is it something I can use to pay the bills, or is it on paper only ?

Ahh ... that sounds suspiciously like what I've been doing in my charting of fund performance to do my analysis as discussed in another thread. I just didn't know it had a name. I had noted that most fund managers use this technique to show results including distributions.

I hadn't considered it for use in tracking my actual portfolio returns ... I prefer to use real numbers (because I can), but I guess for comparing apples-with-apples and for other people to compare their own results, I guess this VAMI method would be a good way to do it. I'll look into adding that to my measures (that spreadsheet just got even more complicated !! )

 

Usually about the 14th - so I'd expect it Monday or Tuesday.

 

Thanks Bob.