Managed Funds How are you managing your managed funds?

Given the current market conditions , especially given the market is down more than 2% again today, I am interested in finding out what forumites are doing to manage investments in managed funds . In particular if they are using a margin loan and their LVR's are getting very tight.

I voted for Other. I am in a some what fortunate position of having a third account which up until now was not being used as security for my margin loan. I have just sent off the paperwork to get this transferred over to Colonial as security. This will hopefully have the effect of reducing my LVR from around 72% to 60% (based on today's current market conditions).

 

my LVR was up to 74% but I sold off quite a bit today to get it to 57% which is still to high, I want to bring it down to 40-50% max.

 

crc_error

out of interest, was selling your only option or did you sell because you felt the market correction has a way to go yet? do you plan on buying back into the same managed fund down the track when the market has improved?

gazza

 

The market isn't looking good in the near term, so having such a high gearing with a bad outlook is not good. I have sustained very bad losses and can't continue to keep losing at this rate.. thanks to UBS property securities.

One thing I have learned is diversification is useless during market corrections.. as everything gets hit.

 

"One thing I have learned is diversification is useless during market corrections.. as everything gets hit."

Good news.

You should diversify BUT different class of assets.

 

I am also sitting on a big loss however it's currently a paper loss and so for me the question is whether those losses will be recouped in the medium term. When the market fell heavily in august 07, I was suffering similar losses but the market rebounded by november. I don't see such a quick turnaround this time and feel that the losses will continue for some time yet. So for now I am trying to survive the carnage by utilising all means possible to manage my LVR. Besides LVR the other issue to monitor is actual value of units held versus amount owed. Given I am 100% geared (either via LOC or margin loan), I will be getting more than a little nervous when I have negative equity. Not there yet but a couple a days like today could see that situation occur.

 

I dont have a margin loan yet, (and wont till the market settles or starts trending up again). Every month a measley $160 is added to the CFS geared fund. Looks like I'm getting more units for my dollar.

 

yeh, and how does it help? Every class is getting slaughtered.. regardless if your in LPT, shares, international..

 

yeh but I'm now in my 4th month of straight losses so no rebounds in sight yet!!

We can thank US greed for all this mess.

 

Diversification
Definition

A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction.
The goal of diversification is to reduce the risk in a portfolio. Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate.

Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

PS – also : Paintings (say... Renoir), old coins, stamps, antiques etc...

 

certainly direct residential property is separated MORE than those I listed, but cash is hardly a investment.. I don't know enough about art or wine or coin to get into those on a large scale.

what is your gearing at Sim? have you taken any action recently?

If all the things i listed are all 'the share market' then there is no point in diversificating across share market classes.

 

rather than pouring spare cash into fund, this year my wife and I are putting the money into INGdirect each pay. At the start of next year we should be right to buy a new property to live in, and our villa unit will become a rental. Then we'll start looking at putting cash into Navra to assist with the small amount of negative gearing. (then another house, then more funds, then another house, then more funds.....)

 

US in part but we all need to manage our own downside too. If we carry too high an LVR perhaps it is us that is greedy?

Personally, unless my LVR was nearly always at a point where I could cope comfortably with a 40% market fall I wouldn't sleep too well. Sometimes that may mean a change of stategy like injecting cash into Margin Loans rather than continually Capitalising interest etc etc.

The downside of having a reasonable buffer is that there are certainly times when you may not be maximising your gain however I think one important stategy of this game is to be able to stay in the game.

Good luck mate. Taking a loss is never pleasant and many, many would at least be sitting on paper losses today, myself included. Paper losses are very different to crystalised losses though.

 

today China isn't holding up.. its down 2.5% at present

 

My LVR was around 50-60%.

I transferred some of unsecured managed fund holdings & share holdings to maintain my LVR @ below 50% range. I no longer have any unsecured shares nor managed funds. I have also instructed NAVRA to put half of its distributions into my margin account to reduce the LVR as before all distributions were fully re-invested. It's scary to see your earning wiped off.

If worst comes to worst, then I would either have to put some cash savings or sell off some funds and crystalise the loss and move on with my investment journey.

 

I'm currently sitting at 59%. Would be more comfortable closer to 50% but given the plunge the market has taken I'm not too bad. Am currently transferring in any surplus cash I have to reduce the margin loan in the short term. I will buy more again once I can see the drop stop.

Its been a learning curve for me. I understand now that I should have bought in small lots not just jumped in with both feet. That OK. I researched all my funds and understood the returns over the pasted 10years. However had I of waited I may have picked the same funds a little cheaper in the short term. Not too worried though, as I said a learning experience.

I do still hold CFS properties, I should have sold them when my loss was only $7K (had the form filled out and everything) now I am sitting on a paper loss of $18K. I'm still ok though because I don't need the funds in the short term and I am still getting enough income to cover my loan on the IP. The IP has increased more than enough in the last 6 months to cover my losses so I am still ahead of the game.

The last 4 or 5 months have been a great learning experience. I guess what doesn't kill you only makes you stronger

 

if there is any consolation in the market, LPT sector is <ONLY> down 1/2% at present whereas the all ords are down 2.5% so it looks like LPT sector might be hitting a bottom <finally>

 

So what lessons have people learned?

lessons I have learned are:

a) Keep gearing at 50%
b) Dollar cost average your entry points
c) invest monthly to take advantage of these price drops rather than been forced to sell with high gearing
d) don't expect the market to continue to run, even if the sun appears to be out
e) Calculate the worst situation, and make sure you can ride it out