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Fund volatility

Discussion in 'Managed Funds & Index Funds' started by perky, 24th Oct, 2005.

  1. perky

    perky Well-Known Member

    Joined:
    15th Aug, 2005
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    300
    Location:
    Sydney
    Hi All ,
    I have a question for Steve - which he is happy to answer here (he told me:) - so here goes:
    I have been watching with interest this month the market. I just checked the wholesale fund and see how its going - it has gone backwards (in trying to
    outperform the asx200) this month - I would have thought the volatility
    this month would have been great for the fund. Do you know why- is all the cash used up down below 10% and we are waiting for the market
    to recover?

    PS This is what Steve told me (just shows he is willing to tackle the hard Q's :D )
    "PS: I am always happy to receive questions at the office, but InvestEd
    is a great way of getting the answers and we get to share it with the
    members!"
     
  2. Steve Navra

    Steve Navra Well-Known Member

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    7th Aug, 2005
    Posts:
    195
    Hi Perky,

    There are no hard questions :) (Just reality)

    Okay, so yes volatility is great for the fund:

    In principle we will be selling as the market goes up and buying as the market goes down. The market has declined this month by approx 7%. (Similar to what happened in March 2005 when the market went down 9%)

    The real point here is that as the market declines, we are buying potential . . . in other words the value of each purchase increases the lower the market goes.

    At the start of the month we were in excess of 3% above the S&P 200 and now -7% later we are 2% above the index. (But we are holding about 5.6% of potential outperformance.)

    What does this mean??
    Similarly to what happened in March:
    Until the market recovers to its previous position the potemtial gain will remain just a potential. (Unrealised)

    With each increase back up we will gain the extra margin from each value (cheap) purchase we have made. By current norms, when the market again reaches its previous high we should be approx 5.60% above the S&P 200.

    Does this answer the question??

    regards,
    Steve
     
  3. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Location:
    Brisbane
    Seeing the fund this low makes me wish I had money to put into it.

    Mark
     
  4. perky

    perky Well-Known Member

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    Sydney
    Yep, nicely !!
    Thanks Steve. :D
    I have been watching each day this month with great interest - and after seeing what happened on Friday (i.e market dropped around 60 points mid-morning - and recovered fairly well to be down around 20 points by days end) thought it may have presented a very good buying opportunity earlier in the day for the fund.
    So is there much cash left?
     
  5. gazza

    gazza Well-Known Member

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    Canberra
    Steve

    Let's look at a slightly different scenario. Say the market is now in a bit of a bear phase and over the next few months, it trades in a range between 4000 and 4300 points, but is fairly volatile. How will the Navtrade system perform under these conditions given that you would have used up a lot of your cash reserves buying opportunitiy as the market fell from 4600 to 4300 points? Do you then rely on receiving more investment money to be able to trade enough volume to take advantage of the volatility?

    Gary
     
  6. Steve Navra

    Steve Navra Well-Known Member

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    Posts:
    195
    Firstly, even though we have been on a "spending spree', there is still about $7,500,000 in cash available for further purchases. Also, investment funds are continually coming in on a daily basis.

    Secondly, it doesn't matter if the market is a little bit bearish as long as there is some volatility: This will result in continuous trading of the peaks and troughs. (Between 4000 and 4300)

    Lastly . . . each time a sale is made and profit is locked in, this collects towards the next distribution and will generally be more than the market decline. This past quarters distribution is a great example of locking in profit:

    Example:
    Distribution end Sept = 5.5% (Net perf @ 10.58%)

    Perf to 24/10/05 = 3.12% net

    Now the decline is over 7% as at tonight’s close, HOWEVER the 5.5% that was paid out remains! (Locked in) :D

    Some are still sitting with the cash.
    Some have reduced non deductible debt.
    Others have purchased more units.

    These with a buy and hold or dollar cost AVERAGE methodology have LOST 7% :mad:

    Oh well . . . different strokes for different folks.

    I see Europe’s currently up and USA futures too . . . perhaps tomorrow we might lock in some realised profits.

    Who can know :confused:

    Maybe we get to spend some more cash . . . either way profit or potential value, it doesn't really matter.

    DCT always puts a :) on your dial.

    Regards,
    Steve
     
  7. Alan

    Alan Well-Known Member

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    Sydney
    Hi Steve.


    Following the Offer Close the other day, when do think you will be in a position to comment on the outcome and next stages?



    :)
     
  8. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Back up to:

    Retail = 5.34% net
    Wholesale = 5.42% net

    I guess DCT does put a smile on your dial after all :D