Managed Funds Harrop Financial

Anyone know anything about this organisation. Saw ad this weekend re returns of 45%+ audited for last ten years. Presentation in Brissie this week, ad had a small Tricom name at the bottom! Any info good, bad or ugly.

 

It would be interesting to know what it's about, but as always, I think market efficiency means it's just not possible without a catch. Those audited 45% returns may be true with: very small amounts of money, a non-duplicable skill, excess expended effort or inside information.

And of course there's always the argument that if it was sustainable with lots of money, why would you advertise it? Turn it into a company, get VC, give them a small percentage and access billions of dollars in capital.

 

45% over 10 years?

And I'm David Hassellhoff!

And also, the company was only registered 4 years ago

ASIC Free Company Name Search

 

Here is some info re Harrop.

The 40+% is because the investment is run with a 65% margin loan. In the audit report it is based on $10k with a $18k loan returns are expressed as a return only against the $10k.

http://www.google.com.au/url?sa=t&c...3d5mZMJgHcG4L0us=&sig2=KHApMwkkhdf2T7SvpRvZEg

http://www.google.com.au/url?sa=t&c...zr3T2MAut6h5PqUY=&sig2=sKN2j9fF1WesTEob4QEv6Q

Based on the same calcs Navra returned +33%

Cheers

 

Of course, ROE, not ROIC. Too obvious to make sense at the time.

And he's a technical trader... typical

 

Handyandy, thanks for the info.

iiinvestor - you do not seem to be a fan of technical analysis. However if you take a look at most of the shares in the Navra fund at present you would see that by trading on the technicals you would have done far better over the last six months that just "cropping" the spikes and dips. Let the profits run is all too often forgotten when "trading" to produce short term returns. However there is room for both in the market. Most technical traders last year made in excess of 40% - grab Colin Nicholson's latest book Hot Stocks for 2007 and read up on some very valuable lessons on technicals and undervalued companies.

Geared is just fine to calculate returns, some of our best performers, CFS etc. are doing that.

Only 4 years trading name does not mean much. Only relates to a particular entity, not the man's trading ability or length of time. I will pop along Wednesday night to see what he has to say.

 

redrover,

Would appreciate it if you give us the rundown after the session

 

redrover:

It was just friendly banter; I didn't mean to offend anyone here who considers themself a TA.

I still think reporting on ROE is completely misleading though. The returns on CFS Geared are returns on your invested capital, not just their equity. BHP also gears their assets but your invested capital is in question. If you buy a $1m house geared at 99% and it rises 15%, that's a 150% return on equity. Do you think it's fair to advertise that return? That's a rhetoric question; I'm sure you see what I mean. It's comparing apples and oranges.

 

I have to agree with iiinvestor on this one. To tout figures on geared portfolio is to confuse and mix the investment decision and returns with the financing decision.

Of course gearing is important, but it is, as iiinvestor has said an unfair comparison as gearing is typically at the investor level and its appropriateness will depend on free cash flow of investor, their tax position and risk tolerance.

I don't think pointing to internally geared funds like the colonial etc is appropriate to the argument.

My 2.2 cents worth.

Cheers
N.

 

Again redrover, apologies for the sarcasm. When I re-read what I wrote, I can see why it didn't come across as sarcastic as I had hoped.

On a different topic (but a similar level), Fosters reported an increase in net profit of 90%! A family friend walked in today and said:

"WTF, 90% increase in net profit and the share price went down. What more do they want? Here [as he threw me a raft of reports & media releases], you tell me why!" Just for the record, the tone was understandable because he has a significant investment in Fosters.

On the front of the half year report, there it was, net profit 90% up to $500-odd million. So I opened up the presentation and there was the catch: net profit AFTER ABNORMALITIES up only 11%. Hmmmm... I wondered what was going on. The additional "profit" ended up being divestments in India and Vietnam, to the tune of $190m. Also, it seems they're going to use the sale proceeds to buy back shares. Am I right in saying that they're essentially shrinking the company by doing that?

Anyway, I just thought that was interesting in light of the discussion in this thread. Not the end of the world, but a bit of a nasty taste if it was the company who promoted the 90% increase... I think.

 

FGL did bite me today

 

Shrinking by divesting in India and Vietnam? Yeah..

Shrinking by buying back shares? Nope. This doesn't change the size of the company, but by removing shares from circulation (via buyback) it increases the value of each outstanding share.

 

Robert Hagstrom discusses share buybacks in The Warren Buffett Way - and does an excellent job too. I suggest getting the book and reading it to those who haven't already done so, it's a fantastic read.

Mark

 

Went to Harrop Fin. info session last night. This is not a managed fund, it is your individual investing in between 10-12 ASX100 companies for a 12 month period and not touching. Allows for dividends to be taken or reinvested, you can use covered calls if you want monthly income provided you do not allow for exercise. Amounts of money invested depend on you, but basing it on an LVR of 65% in a margin loan, and allowing for dividends to be reinvested you can certainly get a better return than managed funds. Interesting when you go into it how inefficient managed funds really are, although they take the work out of it for you. Maybe they overinvest or overtrade.

Those that queried the figures, all audited by Grant Thornton, Accountants (in 112 countries world wide) to ASIC industry standards and Grant Thornton set the timeframe for reviewing any 12 months period. Claims to have not had a loss in any year and no "clients" have lost money over the last 10 years. It is a very simple, very robust system that has proved it can be replicated and has stood the test of time.

It is very much a value model investing you can do one hour, once a year with the Fin Review, a pencil and a ruler. There are criteria to pick which stocks to invest in, mainly underperforming blue chips, and other variables like P/E etc. which would be revealed if you sign up. Tricom wanted to take the scenario and form a managed fund of their own, but for the time being stays as is. Fund may be on the way in the future.

Says he has outperformed every other managed fund in Australia over last 10 years, even those that return 45% one year and then drop down to 2% the next. Very much like Roger Montgomery at Clime Asset Management was using several years ago when I attended one of his presentations, but obviously each has their own set of criteria.

If you followed the selection criteria but did not gear your return would probably be about 28%. Far too much detail to go into beyond this - do your own research and form your own opinions.

 

By the sound of it, a set of stock picking rules. e.g. PE < 14, ROE > 10%, Yield > 3%, D/E < 50%, etc.

 

On the topic of misquoted returns... does anyone here know how returns are calculated by fund managers?

I was just thinking that this Harrop guy (on top of using ROE) is probably using an arithmetic mean and I'm almost certain he'd be using annual compounding. Most accountants probably wouldn't even understand the difference, so the fact they've audited the returns doesn't mean much, especially since they let the ROE thing through the cracks.

So what happens in the industry; Morningstar, AFR, etc?

Surely they'd use geometric means like they should, but I reckon they'd use annual compounding instead of continuous compounding. I guess it's not a big deal, but it would be interesting to know if the whole industry misquoted returns. At least if they were all misquoted in the same way it wouldn't matter too much. Actually, maybe it would if the variance was high.

Anyway, it would be interesting to hear from someone who has the low-down on this stuff.

 

The MER is another area of contention.

Normally its calculated on the funds you have invested but there are some MF's, namely internally geared MF's, the MER is based not only on your investment but also the additional funding sought.

So where it is a MF which does a $1 for $1 ratio the MER is actually double the quouted MER as expressed against your funds invested.

I will need to dig around again to find the MF's operating this way.

Cheers

 

I've seen some sites (particularly those dealing in share trading for more technically savvy investors) which use compound figures, but most of the fund management sites I've seen seem to use straight averages.
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Sim'

Attached article may not be relevant, but it contains some useful information.