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Colonial First State Geared Australian vs. MIF Geared Australian

Discussion in 'Managed Funds & Index Funds' started by archangelsupreme, 8th Oct, 2007.

  1. archangelsupreme

    archangelsupreme Well-Known Member

    Joined:
    7th Sep, 2007
    Posts:
    206
    Location:
    Australia
    OK,

    I think i'm going to enter into my first Geared Fund. Though something's pretty puzzling regarding the two Colonial choices.

    In Investsmart, they list the MIF as 1.95% MER and the FirstState option as 3%. However looking at the PDS they both list two for both...MERs 1.4~ (n) and ~3 (g).

    So are they really comparable? If they are, I would think the FirstState option is the one to go for as it produces higher returns on average, better rating from Morningstar and sits on a larger Colonial platform?

    On a side note, can someone please explain the (n) and (g) MERs how does it work and which one will I get billed for annually? I don't think i have a detailed understanding of this.

    Thanks.
     
  2. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Archangel,

    n=net
    g=gross

    This terminology is usually used for geared funds.

    Ie, the net figure is the total fum and the gross is ungeared. The percentage difference (n / g) tells you the gearing ratio which is 46%. 100 - 46% = 54% LVR. Double check it in the PDS though it's either 46% or 54% LVR :)

    I'd be following the PDS over some website personally. The Product Disclosure Statement has a heavier weighting to ASIC than some non-advice website.

    Cheers,

    Dan
     
  3. tasmo

    tasmo Well-Known Member

    Joined:
    2nd Jun, 2006
    Posts:
    47
    Location:
    Canberra, ACT
    Hi Dan, you got the first bit right :), however from an investors point of view, the net amount is the amount you invested, and the gross amount is the total amount your investment buys with the Funds internal gearing, eg; you invest $100,000 and the fund at 50% lvr borrows another $100,000 to give a $200,000 gross investment in shares.

    The Funds used to only quote MER on the Gross amount which looks much better than the net MER. Reporting requirements have forced them to quote net MER's.

    The net MER looks expensive but when you take into account your extra geared exposure to shares, the gross MER is then relevant, and comparable to non geared equivalent Funds MER's.

    Note net MER's are always higher than gross MER's so
    so dividing Net MER/Gross MER will give you the gearing ratio say about 2, rather than 50% lvr. Invert the division and you will have the LVR.

    On Colonial First State First Choice Wholesale Geared fund apir code=FSF0043AU the Net MER=2.09% and the Gross MER=1.03%. 2.09/1.03=2.029 gearing ratio.
     
    Last edited by a moderator: 8th Oct, 2007