Managed Funds If you were me..

Hi guys,

Just thought I'd post my two current alternatives to gauge ideas/thoughts from more experienced investors. I recently put 6 k into CFS Geared, and now have roughly the same amount to play around with. I'm considering
a) putting it into Challenger China Fund; or
b) reinvesting more into the CFS fund, so as to then qualify for a margin loan at a 60% LVR (minimum is 20 k loan with Commsec). I have other funds (currently tied up in direct shares) which I can sell in the event of a margin call.

Your ideas?

Thanking you in advance,

potter07

 

why not role ur shares in to the same broker so ur overall lvr is lower?

Just because the min loan is 20k, you dont have to invest the whole lot. I think my original margin loan sat at 5k for the first couple of months (although i was approved for the 20 i didnt have the lvr to support it). A note though any balance below 10k for the month attracts a $10 admin fee....

If you gear at 60%, you only need a 5% drop for a margin call (which in a geared fund is like a 3% drop). Maybe look at going for a lower LVR like 45-50%. In saying this, if you invested @ 50% LVR in the begining of august (before the crash) you wouldnt of needed to make a margin call over the next few weeks, so you could be safe going for 50%...

 

Colonial will give you a loan for less than $20,000 - or do you already have a CommSec one which you want to use?

 

I don't have a margin loan as yet. DaveA, in other words, I can invest in the Challenger as my second MF, apply for a margin loan and spread the say 20k between the two? In terms of LVR, you're right, I'd initially prob start on 50% or so given volatility.

 

If I were you?

I'd be putting it into Challenger China and not CFS Geared. Spread that exposure across multiple markets and categories to reduce your risk profile.

Also, I'd be very careful about taking out gearing against a fund that is internally geared. Then you'd have gearing on gearing which is really off the scale on its risk profile.

But you did ask what I'd do if I were you right...

Cheers,
Michael.

 

But what is more risky? Investing in a geared fund, or investing in navra/cfs aust share fund @ a LVR of 65-70%

Also depends if you look at return on equity or return on investment. Equity is the one you put in, investment is how much units you buy. However i must say if your prepared to gear, you believe the market will go up buy more than your interest costs, so why would you stop short of throwing everying at it...

 

Dave,

I think we're saying the same thing. I read back over your first response and you made the point that a 3% drop in a geared fund could result in a margin call where 5% in an ungeared fund would.

That's my point about gearing on gearing. Watch that leverage...

Cheers,
Michael.

 

Thanks for your input Michael, I'm swinging that way.

DaveA, in terms of a margin loan as per my earlier post, can I spread the loan amount over the two funds? Ie, if I were to place a loan of another 5 k over each (@ 50% LVR), so as to have roughly 20 k overall invested.

Will the 20 k minimum with Commsec pose a problem? From what I've read, I've interpreted it as 20 k is available, of which I am entitled to use 10 k; the rest available later as drawdown etc (subject to admin fee you suggested).

Thanks again guys for your help.

 

yes. the 20k is a minimum approved amount, not min borrow amount.

Yes the loan can be used in what ever portion youd like (subject to the funds minimum investment amount) [CFS, BT, ING all 5k for the portfolio)

 

You can even make a cash drawdown to buy shares if you like.

 

Sweet. Thanks again guys, appreciate your input.

 

You can also get margin loans with a 10% buffer in a trade off of features V price.