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Margin Loans Leveraged Equities and fund distributions

Discussion in 'Finance & Banking' started by Simon Hampel, 27th Oct, 2005.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Some observant people (who have margin loans for fund investments and also choose to have their managed fund distributions reinvested) may have noted that Leveraged Equities are not yet showing the additional units purchased after last quarter's distribution in their figures.

    This means that the current LVR recognised by LE is lower than it should be.

    I queried LE about this and this is their response:

    ... so be aware that in the case where there has been a significant distribution and then in that same month the market also drops significantly, you are potentialy at a greater risk of margin call - it pays to be careful and manage your loan amounts carefully.
     
  2. Glebe

    Glebe Well-Known Member

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    Thanks Sim, that clears things up for me now.
     
  3. artgul

    artgul Well-Known Member

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    Hi Sim,

    What if we get distributions paid to our account and then we put it back into the Fund. Will that be quicker?

    Thanks.
     
  4. Glebe

    Glebe Well-Known Member

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    Then you have buy/sell spread (hidden) costs.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    artgul, if you have distributions automatically reinvested, the transaction is calculated as of the 1st of the month. This means you get the benefits of purchasing at that new lower price on that day.

    Assuming the fund is making money and hence the unit price is going up, if you were to take the cash (which you would have to wait up to 2 weeks for), then go to reinvest it (which might take another few days, longer if you go through your margin lender), then you're probably 3 weeks into the new quarter by the time you purchase, and the unit price is probably already higher, and of course you have an extra 0.15% penalty as well from the buy-sell spread which Glebe mentioned, which you don't pay for automatically reinvested distributions.

    I would suggest that it would normally not be worthwhile taking this approach - you could end up with fewer units for your money.

    Just have the distributions reinvested and make sure you are gearing to a sensible level (or make sure you have spare cash available to meet potential margin calls if the worst was to happen).
     
  6. redrover

    redrover Well-Known Member

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    Sim
    This was assuming the fund was making money. However with the usual October fall off in the market it proved more beneficial to wait the 2-3 weeks and reinvest at the $1.0578 level rather than the $1.12 level immediately following distribution, thus increasing the number of units able to be purchased even allowing for the spread. However one cannot always predict the market direction and of course if it had continued to march forward then the automatic reinvestment would have been the better course. However as markets do have pull back periods after profit announcements and dividends it is not unreasonable to perhaps hedge your bets by holding some funds back from reinvestment biding your time - maybe half and half! ;)
     
  7. MrDarcy

    MrDarcy Well-Known Member

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    Dollar cost trading of a Dollar Cost Trading Fund :D
     
  8. Glebe

    Glebe Well-Known Member

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    I still haven't received my September distributions... whats going on Leveraged?
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Glebe - I think you'll find they process the data once a week ... I'd expect it Monday.
     
  10. Glebe

    Glebe Well-Known Member

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    Still waiting!

    Are other lenders like this?
     
  11. Glebe

    Glebe Well-Known Member

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    If any other Leveraged Equities borrow hasn't received their September distribution, it may be an idea to get in contact with them.

    "Hi Leveraged, Where are my September units."

    This is my response:

    "Hi Glebe
    I have contacted our managed funds team and they have contacted the Navra
    Registry to obtain an up to date balance. We should receive this shortly and
    hence will update your balance. Thank you for alerting us to this discrepancy."
     
  12. Jenny

    Jenny Well-Known Member

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    Hi Glebe

    I'm very interested to hear how this goes around, and any other dealings you have with Leveraged. We have a brand new margin loan with them and are babes in the wood so any tips - thanks.

    Jenny
     
  13. Glebe

    Glebe Well-Known Member

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    I logged in this morning to Leveraged, and noticed all my units were there now :cool:
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    A good ... mine are too - my account manager told me they would show up yesterday or today.