Hit a new high today

So this should mean Navra Fund is selling down shares and the unit price ought to be rising?

Comments?

 

We would find out tomorrow around 3pm wouldn't we?

 

The sale of a share will not effect unit price, as unit price already reflected the unrealised gain.

eg Managed fund (100 units available) holds 10 shares of XYZ Pty Ltd, closing price of $10. Total holdings $100 (10 shares @ $10), unit price per share $1 ($100 / 100 units). Note this is an UNREALISED GAIN.

The next day, the managed fund sells the XYZ shares at $10. Total assets are still $100, only today it is cash instead of shares. Unit price still $1.

Tomorrow, the XYZ share price is $5. Fund still has $100 cash, unit price stays at $1 ea.

 

Nope,

Like Coopranos says and like I've pointed out in other threads: the unit price fully reflects the unrealised capital gains by virtue of the actual value of the stock held. Transacting out of that stock just converts the unrealised capital gain to cash and locks in the gain. But that transaction has absolutely zero impact on the unit price. All it does is move a balance sheet item from shares in a company to cash. Obviously, it also has a profit and loss impact in that now you've got a trading profit that is taxable at the end of the year.

Theoretically, the benefit of executing that transaction is that it locks in the gain. Now you've got cash on hand and a locked in profit. Should that stock fall in price your cash is protected from the fall and you now have the option to buy back in at a lower price and potentially repeat your trading gain process. This is what DCT attempts to achieve. Arguably, they are doing this in that they are realising trading profits. I would love to see the unrealised capital losses value though and offset this against the realised capital gains (trading profits). You win some and you lose some. The unit price reflects both of these outcomes. Trading profits only show the realised capital gains. There's no visibility to the unrealised capital losses, or for that matter the yet unrealised capital gains (hanging on for a bit more).

Cheers,
Michael.

 

So today is a significant dip thus there should be some buying going on. When the prices recover that is when the unit price should start rising...

 

Yep, sounds about right.

Theoretically, Navra was in cash at the top and now the share prices have fallen back they should be buying back in. The value of the unit price should not drop as much as the market because some of the value of the unit price reflects their cash holdings which aren't exposed to the drop.

Now they buy back into the market. Go long. When the market recovers the unit price lifts again. But now we're at a higher unit price as it didn't fall as much as the market did because it had a weighting to cash.

I won't get into performance commentary, except to say that that is the theory and the most recent significant correction and recovery did not deliver those theorised outcomes. It ended up pretty much matching the market through that timeframe. But this could also be due to the stocks being traded compared to the index being benchmarked against. The fund is conservative and is weighted to the ASX50 which typically under-performs the greater universe of the ASX200 in a rising market. But the fund did the same zero result as the ASX200 from correction through recovery which could be argued to be an outperformance of the ASX50. Given the movement was sideways though, its likely to correlate with the ASX50 over that timeframe.

Enough waffle, you get the idea...

Cheers,
Michael