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How Is Everybody Going With Navra Funds?

Discussion in 'Managed Funds & Index Funds' started by bob doli, 25th Oct, 2009.

  1. bob doli

    bob doli New Member

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    Hello

    After Reading some posts over the years dating back to 2007 on Navra Funds I was wondering how is everybody doing with these funds?

    No mention has been made on the forum that the fund was setup for 10% income per year to cover negative gearing shortfalls on property; since the fund has paid no where near this recently how have people gone with cashflow shortfalls?

    Have people been liquidating assets or borrowing more from LOC's? Whats been happening people?

    Thanks.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I sold out of my leveraged position back in early 2008.

    The funds moved to 100% cash and avoided the worst of the downturn (hugely outperforming the market in the process), but due to a very conservative re-entry (and a surprisingly unvolatile market recently), the funds have not made the most of the recent rally.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Funding shortfall via other free cash flow.

    Cheers
    N
     
  4. Young Gun

    Young Gun Guest

    To say they avoided the worst of the down turn and hugely outperforming the market in the process is somewhat misleading; they went to cash in mid October when the market had already fallen by about 41%. When they went to cash the market then proceeded to fall by a further 12% over the next 5 months when it hit the bottom in early March.

    However by not fully participating in the market due to the restriction placed on the fund by its manager to protect Warrant holders & Leveraged Clients (perhaps at the expense of non- warrant holders) the competitive advantage of this fund has been completely eroded and it has underperformed ever since. Continued good markets will further increase the gap between Navra funds and other Managed funds and index funds

    For example

    From June 2007 Navra went from about $1.2233 to $0.7692 and has paid out about $0.2497 in distributions along the way.

    (Assuming dividends not reinvested, which is the best case scenario)

    Growth: -37.12%
    Income: 20.41%
    Net:-16.71%

    Vs some of its peers

    CFS Ws Aust Share Fund

    Growth: -28.62%
    Income: 22.16%
    Net: -6.46%

    Perpetual Industrial Share Fund Ws

    Growth: -33.39%
    Income: 21.10%
    Net:- 12.29%

    STW (ASX listed index fund)

    Growth: -29.25%
    Income: 15.69%
    Net: -13.56%
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    I agree. The decision was very disappointing.

    I think you're being quite kind actually by saying "perhaps". Whilst the fund manager has made much of how much it has protected investors by going to cash, I'd really like to see the figures of what the performance would have been if they'd stayed true to the NavTraDE philosophy of buying into a falling market and selling into a rising market. Now of course the manager will say that their trading methodology is only meant to work in "normal" market conditions... ;)

    It would also be interesting to see some commentary about how the recent purchase of 50% of a financial planning business has been a good move...

    Cheers
    N
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I stand by what I said in regards to outperformance during the worst of the markets ... as per the charts below (assumes distributions reinvested - which is the only fair method of comparing funds with different income generation methodologies - and is also the industry standard method of reporting results).

    However, it can't be denied that the fund has massively underperformed the market since the bottom by being perhaps too conservative. Like Nigel, I would have liked to see what the fund could have achieved had it been left to do what the trading system was designed to do. I understand why the fund manager did what they did with moving to cash - and given the circumstances, I do believe they made the right decision - but it does mean that the fund has not achieved what I think it could have (naturally, hindsight makes things much clearer).

    I'm not sure it is completely valid to compare the funds you've mentioned - the Navra fund has a different goal and methodology, so I'd not exactly call them "peers", even they do invest in largely the same market.

    But anyway, to demonstrate both our points, here are the charts:

    2007-08 financial year - Navra retail slightly outperforms:
    [​IMG]

    2008-09 financial year - at the worst point, Navra is at least 15% better than the market:
    [​IMG]

    2009-10 financial year - Navra is now at least 15% behind the market since Jul 1st this year.
    [​IMG]

    Combined since Jul 1 2007 - Navra is only 5% behind the market, having outperformed everything for a significant part of this period - although it is starting to lag quite a way behind the CFS fund.
    [​IMG]
     

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  7. Nigel Ward

    Nigel Ward Team InvestEd

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    Sim

    I'm not quite sure how you can reach that conclusion. The fund manager took into account quite irrelevant considerations - namely the gearing/funding structure of its investors. That provided a significant disadvantage in my view for those ungeared investors or investors who were able to manage their margin calls etc. The trouble of course is that because the trading system is (understandably) a black box, we can never really prove that the highly unusual circumstances at the time were solely the reason for the move to cash and not the improper motivation of saving the bacon of the warrant investors.

    Of course wearing my shareholder hat - I don't care as long as the company makes a shed load of money.

    Cheers
    N
     
  8. Young Gun

    Young Gun Guest


    I 100% agree.

    In my view the main concern of a fund manager, should be the allocation of investment funds inline with the strategy of the fund. Whether that be cash, bonds, shares, property whatever. Not whether an individual or groups of individuals are close to a margin call.

    It should rest with the client, whether to go to cash i.e. withdraw their funds. This leaves those investors who can ride the bumps and fund leverage costs able to fully participate in a market recovery.

    This is the problem when your financial planner (and or your financial planning firm) is also your fund manager. It presents a conflict of interest. The two should be completely separate in my view
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I reach that conclusion based on the reality of the situation and the implications for the fund, the fund manager and ALL of the investors in the fund had it continued without moving to cash.

    You are quite correct that it is not ideal, and in a perfect world, the individual circumstances of the investors in the fund should have absolutely no bearing on the actions of the fund manager - but the situation was extra-ordinary, and the fund acted to protect both its own interests, and ALL of its investors interests.

    I honestly believe it would have been a complete train-wreck for everyone had the fund continued without moving to cash (ie the fund would have become inoperable). The fact that the fund manager had both the means (a flexible mandate to be 100% in cash) and the guts to make this move actually avoided even more significant problems.

    You are quite within your rights to be concerned about the way the fund is run and the fact that the majority of its clients are also clients of a related financial planning firm ... you need to take these things into consideration when deciding whether to invest or not.

    I'm not saying that a move to cash was the correct thing "in general" for the fund to do - I really believe that it should have been left to do its job ... what I am saying that given the extra-ordinary circumstances that the fund manager found itself it, they had little choice but to move to cash. As such I think they made the right decision, regardless of whether it was "ideal" or not.

    I still think the fund has its place and serves a valid purpose.

    I will note that I am not currently invested in the fund - I haven't been since early 2008. There are multiple reasons for this, including a belief that I can probably get better returns elsewhere based on my current strategy.
     
  10. D&K

    D&K Well-Known Member

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    I don't think it's irrelevant. Consider some of the property funds that 'considered' their investors situations and simply froze their funds before they sunk from a run on withdrawals. Yes I know their assets are illiquid, but the fund managers interest was in looking after the fund (and commissions?), not investors.

    As the Navra RI fund is intended as part of a broader strategy where the fund is in balance with real estate and cash (ie aspects outside the fund itself), I think it was a very relevant and also well managed.

    D
     
  11. Nigel Ward

    Nigel Ward Team InvestEd

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    Sim you make some good points (as always), but we'll have to agree to disagree on this one. Train wreck? In all likelihood yes. But that's an individual investor's problem to manage (along with their financial adviser). You are right again that the permitted asset allocation is 0-100% cash or Aussie blue chip shares...so the manager was well within its mandate to change asset allocation. I just don't accept that it was a decision made for the right reason - namely that that's what was in the best interests of the members, rather I think additional issues were taken into consideration which should not have been.

    I don't propose to go into an extended debate on this further because ultimately it's academic. We can't change what happened nor will anyone be able to conclusively demonstrate that irrelevant considerations were taken into account. The only thing an investor can do is vote with their feet.

    I do agree with you though that the fund has its place and serves a valid purpose. Ultimately as a passive investor in a fund where one doesn't have day-to-day management over investment decisions, you gotta take the rough with the smooth :mad::rolleyes::D I guess that's another reason to like direct property.

    Cheers
    N
     
  12. craig

    craig Member

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    Hi Sim,

    Prior to it moving to cash, Steve told us (BIG) that it was at 100% allocation and 100% invested and he was hoping it would be the "bottom". However, he moved to cash a few weeks later at about the asx200 4000-4200 I believe?

    Anyway, had the fund stayed in the market, how could the trading system do what it was designed to do, where the market continues to fall yet its 100% invested? Surely its not programmed to sell high and buy lower right? It wouldn't have had anything to trade with.

    Craig.
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That's a good point. Once the fund becomes 100% invested, it is essentially just a passenger if the market continues to drop.

    The challenge for the fund manager is that they tune the system to work based on an assumption that the market will fall no more than X% ... but if it does, the question is what to do then?

    The paradox is to either sit it out and do nothing (because the trading system can't do anything), or you go from 100% invested to 0% invested in order to protect the downside. Both are bad decisions in my opinion - and I don't know how to reconcile them.

    The idealists say, let the system do its thing - but the realists point out that once the market has fallen this far, it can no longer do its thing anyway.

    The problem is that if you are going to go to cash in a falling market, you want to do it earlier rather than later. But the system is not designed to do that (although the fund manager has the choice to do so at any time, over-riding the algorithm ... even though I generally don't think they should).

    I think the ability for the fund to be 100% invested or 100% in cash should in general be left up to the algorithm to decide (that is the point - if the market went crazy in an upwards direction, the fund would get closer and closer to 100% cash as it sold to take profits).

    So the idealist in me says - let the algorithm do its thing, but the realist in me says - I know why the fund manager did what they did and I don't see any other alternative that would not have ended in disaster.
     
  14. Tropo

    Tropo Well-Known Member

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    Nobody can design a system which works in any market condition.
    Because market is changing all the time owner/user of the system should make some ‘adjustment’ to it.
    The only way to protect the money is a well designed exit strategy (stop loss).
    Doing nothing and/or hoping/praying when market is falling down is a recipe for disaster.
    Professional traders are using very tight stops ( 1.5% ~ 2.0%). Also, some players are using options or short selling to cover losing positions or make more money in the falling market.
    The worse possible scenario is to sit and do nothing to protect capital. If trading capital is decimated, the game is over !. :cool:
     
  15. lorrimer

    lorrimer Well-Known Member

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    Well the Navra Retail fund has again moved to around 85% cash by my estimation. The unit price is now around 7% lower than when the fund last moved to cash and a distribution is unlikely this quarter. Given the fund managers previous reluctance to re enter the market, I would be interested in others thoughts regarding the future prospects for this fund?
    Is there a flaw in the trading system that results in the fund becoming 100% invested too soon during a market correction?
    My own thoughts are that there is little point in locking in losses unless you are prepared to capture gains by re entering the market in a timely manner. Buying too slowly into a rising market sets the unit price up for a bigger fall when the next correction comes around.
    IMO a fund that protects the downside using either a long/short strategy, or options such as the Zurich Equity Income fund may be a better option.