Managed Funds High Income funds

I have read the posts concentrating on which managed fund's are the best - such as the Platinum Asia or Japan and so on.
My question is which managed fund has high income returns (and less capital growth), similar to Navra Retail/Wholesale.
I have a bit in the Navra Wholesale, and once the US fund starts will diversify into that. But I still feel a need to diversify a bit more, and after attending a Macquarie Bank Seminar on tuesday night found out the following info (according to Macquarie) - Japan and Korea are both in an upswing .... and the safest sompanies in Oz over the long term are BHP, Brambles, Westpac, ANZ, Rinker, AMP, Woodside etc.
So which Asian funds fit into the criteria of strong growth, high income returns and have shown outperformance in the past?

 

Perky,

Just sell down your units when you need the income, its the same result. Growth just gives you the flexibility of determining how much income you need and when so you minimise your tax liability when you don't need it by leaving it in the fund.

Cheers,
Michael.

 

Something over 12% income...with capital growth of over 2.6% (inflation rate). Navra has been great for that so far (and hopefully will be in the future)...however I would like to tap into the future growth of Japan / Korea. Navra Invest is not going to be doing that.

 

Managed Funds Research

Hi,

I have been researching the Managed Funds over the last couple of months and investing in a few. But I was more interested in high growth funds, rather than high income funds. I guess I have not yet worked out the "structure" where I will be able to utilise the "income" from the funds. Meanwhile, I'm happy with the "growth", which exceeds significantly potential growth of real estate at the moment.

Anyway, I'm attaching the research result that is only 1 week old - those are best RETAIL funds that I have found. So far have invested in 3 of them and still looking for one or two more to diversify.

By the way, I will be very happy to know how exactly you use the "income", i.e. what structure do you use for your investements that requires hign income funds.

 

It's called a wife and two daughters.

 

Hi Mav

Far be it from me to tell you how to spend your income...

But some people use the high income from funds like NavraInvest and LPTs to offset the holding costs on high growth but negatively geared investment properties...

If you can, why not get along to one of Steve's "Optimised Investment Structure" weekend courses for the full details.

Cheers
N.

 

Perky,

It might also be a good idea to do some actual research yourself. ie ask: 'Why are Japan and Korea tipped to continue growing?' Get some info, do some research and determine whether YOU feel they will continue to grow. Don't just rely on some salesman from Macquarie for your info mate.

Incidentally and I just want to make clear that this is my personal opinion only, I'm not too keen on Michael's idea of withdrawing funds when you need them out of growth funds (in the short term that is). As we all know, the nature of shares is volatile and can go either way. Shares really are a long term investment and you really do need to have a long term time frame for them.

If you put money into a fund with the idea that you would like to withdraw some of your funds at any given time, you need to understand that the value may be lower when you need the money and you'd be doing yourself a disservice by withdrawing from it. Shares and funds are not a bank account!

There are fundamental differences between income and growth funds and these need to be taken into account when you make personal investment decisions.

Mark

 

Wouldn't the method of selling down some units in a growth fund cause you to pay CGT as well as the tax on the extra income caused by selling your units. Doesn't this eat away most of your profits, while an income fund returns can be offset against other expenses, whereas you cannot easily offset the CGT?

Just looking for clarification as I was thinking of using this method on a growth fund instead of investing in an income fund.

thanks

 

You only pay the tax once. Either income tax or CGT but not both on the same event. CGT is often cheaper than income tax depending on your tax bracket and whether you qualify for the 50% CGT discount.

MJK

 

On the topic of income funds, how do you guys interpret 100% gearing? At first glance (and second and third glance), it looks like free money with a bit of interest expense risk.

I couldn't see myself using my own money for an income fund because my IPs are +'ve and I'd prefer to concentrate on higher growth. But, if I can be geared 100%, the funds managers seem competent, there are good historical results and the capital is protected, then why not?

Am I missing something blatantly obvious here? For example, with the latest Freeman Fox offering or anyone else who does 100% gearing, why wouldn’t I take as much as they will give me if my research gives the fund the thumbs up? I don't think it would affect future credit either.

 

On a similar note, if Steve reckons 10%+ income is a bit of a sure thing with his fund I'm suprised he hasn't a 100% gearing relationship with some lender also. So long as interest rates stay under 10% and so long as the index doesn't drop it's free money

 

In my case, I would be mostly selling down quarterly, so no 50% discount. This leaves 50% tax that cannot easily be offset. Is that correct?

 

It means that the full gain will be added to your taxable income whatever that may be for that particular year. If your taxable income is very low due to lots of negative gearing (eg. property) then you wont pay much capital gains at all.
But if your taxable income is high putting you into the 47.5% bracket with no offsets set up...then you will pay the full 47.5% tax wont you.

Its all about the way you are structured. Its a individual assesment. One persons situation will be different to anothers. Bearing that in mind...most aggressive investors have very little taxable income to show.

Please remember I'm not qualified to give advice / this is just opinion.

MJK

 

I may be wrong because I have never realised a capital gain, but isn't CGT simply based on adding the applicable (discounted or not) gain to your taxable income. Therefore the rate you pay is marginal and is subject to any deductions from other personal investments/businesses.

I could be way off here, but that's what I understood until now.

-T-

 

Just checked the ATO site and that sounds about right. Here's a link to an example if you've held the asset for less than 12 months http://www.ato.gov.au/individuals/content.asp?doc=/content/36581.htm

I think the ATO site is actually really good, same with their help line. I had an ATO guy telling me that I should keep defering business CGT until I retire. At that point apparently there's an exemption and you don't have to pay.

 

I think I found a catch in the Freeman Fox fund, well it's not a catch per se, but it's a catch that makes it not free money. Interest is payable in advance while distributions are paid at the end of the year. So while the distributions may cover the interest, you're going to have to tie up your own cash for a year.

For $250k, that's about $18k in interest for the year. Personally, I'd prefer to tie up $18k elsewhere. Probably in a growth investment, if such a thing is going to exist for the next few years.

 

The macquarie 100% investment loan does have an option to have another small loan to cover the first up-front interest payment if that helps... Have a look at their website for details as I can't remember exactly how it works.

 

Adding to previous post - I don't think this is a good way to go if you want a high-income fund personally - better off with LPT's or something like the vanguard high yield index fund I think. These are better for tax reasons and far far far cheaper in fee's which can make a massive difference over a 10 year period (or even the 6.5yr length of the spann fund).

Any comments???

If you want a good read about just how huge a difference a small increase in fee's can make check out John Bogle's book - Common Sense on Mutual Funds.

For those that are interested in the Mac Newton products you may also like to consider and compare their Multi-strategy fund to the spann one as they've just opened it up again with capital protection. It seems to have a greater choice in fund types. Once again however if you look at the PDS and the worked example of the fee's make sure you are either sitting or laying down as you may feel faint. The fee's in the worked example add up to just under 5%pa.

"to make money out of a hedge fund you need to manage one, not invest in one."

Steve, are you still on InvestEd? Any comments would be appreciated?

 

I read through the Macquarie Newton PDS a month back and my eyes popped out seeing the fees. Having said that, I'm not against fees per se so long as there's a great track record, but these funds are new. They've done their own internal testing but I want to see real results first.