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LPT's (Fund management)

Discussion in 'Managed Funds & Index Funds' started by lorrimer, 11th Jan, 2008.

  1. lorrimer

    lorrimer Well-Known Member

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    According to most market commentators the LPT sector is in almost terminal decline with the worst still to come
    Given that people are paying 2% pa to have their funds managed, why are these managers not moving the funds into cash to at least try to preserve some capital.
    Surely active management doesn't simply mean sitting on your hands watching something decline every day.
    Or does that active management have to come from the client in selling their holdings in the fund?
     
  2. DaveA

    DaveA Well-Known Member

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    well UBS had a 9% hold in centro which before the crash which it has now ceased to become a substaintial holder. CFS have pulled out alot as well. When you have a whole fund dedicated to a sector thats heading down you cant really hide. Each fund has a benchmark how much it will hold in cash, i dont think anyone can say they will hold 100% cash with out getting presure from their investors. If investors want capital preserving then they should pull out themselves, not rely upon the fund manager...
     
  3. Tropo

    Tropo Well-Known Member

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    "Or does that active management have to come from the client in selling their holdings in the fund?"


    You hit the nail on the head.:D
     
  4. Smartypants

    Smartypants Well-Known Member

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    So what are most here recommending (I stress recommending as opposed to advising) in regards to LPT's. Hang on and weather the storm or bail out??

    In my situation, I'm down about 25-30%, so at moment it's only a paper loss but if I sell..............................

    My gut feeling is to hang on, as I did buy for the long term, and hopefully time will correct the current downward trend, but I'd hate to see my holdings 'evaporate' because I was too stubborn or maybe too stupid (not educated enough) to buy when I did.

    What do others think?
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Depends on your circumstances and goals really ... if:

    A) you aren't geared and don't have holding costs, and
    B) you don't need the money for something else, and
    C) you can't think of anything better to invest in, and
    D) you are prepared to wait 12+ months to recover your money, and
    E) you don't have realised capital gains to offset

    ... then you may as well hold on.

    If you had a margin loan or other holding costs (other than opportunity cost), then I'd be looking long and hard at the sector to work out whether it was worth holding on.
     
  6. Tropo

    Tropo Well-Known Member

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    There is no such thing as a paper loss. Loss is a loss......
    If you are down 30% it means that your money is not working for you, so you are practically losing it.
    Freezing money for some time is not a good idea because you are losing opportunity to invest somewhere else. This is what an opportunity cost is all about.
    It is a better idea to take a loss and invest wisely what is left. At least you have got a chance to recoup your loss and make some gain.
    Let me remind you my favourite example:
    Some 6 or 7 years ago a lot of people bought Telstra around $7 or $8 per share. They are still waiting for TLS to move up, and they can wait another 7 years.
    Decision is yours. It’s your money.

    :cool:
     
  7. Smartypants

    Smartypants Well-Known Member

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    Thanks for the reply Sim.

    The funds for my LPT's are borrowed BUT I don't really need the money for anything else, I can't think of anything better to invest in AND I am prepared to wait 12+ months to see a recovery. Just hope things turn around.

    As I mentioned before, I'm probably too stubborn to sell and realise a loss. Don't know if that is good or bad :confused:.
     
  8. Smartypants

    Smartypants Well-Known Member

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    Thanks Tropo.

    Trouble is, if I did sell, I'm not too sure where else I would invest that money. Whats to say that whatever else I invested in wouldn't go the same way.

    As I said in my reply to Sim, I'm prepared to wait to see a turnaround, but your Telstra example also gives me something to think about.

    Decisions decisions.
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Definitely bad ... you should only hold if you think you are going to make money out of the investment within the timeframe you have set for it.

    Don't forget that since you are using borrowed funds, then every day you do not make more than your interest cost, you are going backwards twice as fast.

    I'm not telling you to sell - that's got to be your decision based on your reasoned analysis of the facts.

    My approach generally is to ask myself ... "do I think it likely that today is the start of the uptrend for this sector ?" ... and if the answer is "no", then the next question is going to be ... "if I sell now, am I going to be able to buy in more cheaply at some point in the future, having saved myself all that interest in the meantime ?".

    Personally for listed property - I think the answers to these questions right now are "no" and "yes" respectively ... I think it will go lower, or at least stay stagnant for quite some time until the credit crisis is well and truely over (which won't be this year in my opinion!!!).

    Of course, I could be wrong :rolleyes:
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Cash is unlikely to go backwards, and is a valid investment vehicle at certain times of the cycle :D

    Seriously ... even just saving the 7 - 8% or whatever you are paying in interest is likely to be the best return you'll likely see in the short term!!!

    You can then buy back in once you are sure the uptrend is restored - having not only stopped your losses from growing, but also having more capital available than if you had continued to pay the interest on a non-performing investment.

    Just something to consider!
     
  11. lorrimer

    lorrimer Well-Known Member

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    Smartypants, I have been pondering the same questions myself.
    I read the following today which makes for gloomy reading.

    Business Spectator - When London sneezes...

    If you can't read it, they are saying that office and commercial property in London is already down 9% and is expected to fall by 30% over the next three years. Lend Lease and Westfield are big players there evidently.
    How much is already factored into the prices here is the big question.
    This is where I am annoyed with Australian Unity and Macquarie.
    We are paying them a tidy sum to manage our money. But all they are actually doing is holding a basket of assets that is falling by the day. There is very little, if any, active management.
    Worse still, despite the exceptional circumstances the communication is non existent.
    How difficult would it be for the fund manager to send out an email to explain the reasons behind the large drop.
    To make things even more frustrating AU have sent me a distribution for 44 dollars,
    that's great, but what about my 50,000 dollars that's gone down the plug hole!
    Sim made a very good point that if you sell out at least you save the 8% margin interest.
    I've made the mistake of holding on to losers before, thinking well it's down 60% it can't possibly go much lower. Well guess what? they can. Some of mine went down 99.999% during the tech wreck.
    I'm going to be filling in my redemption forms over the weekend, and unless a miracle happens on Monday I'm bailing out
     
  12. crc_error

    crc_error The Rule of 72

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    And what makes you think your smart enough to pick a sector which will perform better than the LPT sector?

    I would reson that most of the negativity is already factored into LPT's, so getting out now, is of no use.. however the XAO is still high, and hasn't suffered much of a down trend,, who is to say this index will now fall to come back in line with the rest of the market? The last few days have been a perfect example.. falling index when the US was up, so even positive US lead wasn't enough to raise the index..

    You would hate to exit a already depressed index, and move it into one which is yet to fall.. now what would be a silly move!
     
  13. crc_error

    crc_error The Rule of 72

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    So what happens if on Tuesday Centro makes a positive announcement, and the whole sector jumps 15%? A bit late to try to get back in dont you think?

    If your a trader, you might buy sell and re-buy.. if your a buy and hold, the current situation should alter your orginal long term time frame. (which should have been 5-7 years)
     
  14. crc_error

    crc_error The Rule of 72

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    http://www.ubs.com/2/e/auz_library/adhoc_correspondence/PSFComment_2112007.pdf

    most of my funds do send me monthly updates. You will find most if not all funds should at least publish a quaterly update. If you dont subscribe to it, or log onto the website to read it, don't blame the manager for not putting in in frount of your nose.

    Why does this suprise you? I said many times about this fund how I would not invest into it. You get high returns from it, you should expect the possibility of large drops as well. Take the good with the bad.. if you can't accept large flucutations in value, been up or down, dont invest into such a fund.

    Let hope Tuesday Centro doesn't come out with a positive announcement, and you miss out on a 10% gain in one day.

    The tech wreck is completely different to the LPT problems. Tech companies were not making any money.. LPTs own sound commercial properties which collect rent weekly.
     
  15. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Cash! (or even better - your mortgage)!!

    At least you know it won't go backwards. :p
     
  16. crc_error

    crc_error The Rule of 72

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    well all I can say that if you can't accept this volatility, then you should not be in the market.

    Its Time in the Market, not Timing.. Trying to time the market is a dangerous thing to do, as its impossible to do.

    If your not confortable with your money going backwards, then fixed interest is where you should be.. not in shares or LPT's.

    Warren Buffet buys, but never sells..
     
  17. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    So wait until Tuesday then!?

    Do you really think we won't get any more bad news in the next 12 months ? If someone as big as Centro can't refinance their debt - I'm sure there are going to be other players who have just as much problem.

    Long term time frame doesn't mean you should ignore changes in the market.

    Even our friends who promote passive investing via indexing will re-assess and re-weight their portfolio at least annually.

    ... but this too shall pass - the property sector will recover eventually. If you hold long enough, you will make money ... the question is - how long do you need to hold before you do (especially if you have holding costs) ?
     
  18. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm not!

    I cashed out of property nearly 12 months ago when my indicators showed me that the sector was struggling.

    I will get back in when I see a sustained positive movement and sentiment in the market.
     
  19. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, different scenario ... but similar issues.

    Tech companies were relying on the growth in their share prices - living on venture capital and trying to make it big before their cash ran out.

    Centro is also relying on growth - they have a high debt strategy with large parts of their funding based on short term financing - which is where they are coming undone now. It seems now that Centro don't actually own much of what they hold ... the banks (lenders) do! A significant part of Centro's cashflow would be going towards servicing the debts.

    The change in the property sector started once the trusts started aiming for growth rather than income - exactly the same problem that tech companies had - growth rather than income as the focus.

    Of course, not all property trusts are like this - you'd need to do careful research to work out which ones are over-leveraged (but part of the problem is that we aren't likely to find out the nature of that debt until it's too late).

    The big problem is that the credit crunch has made leverage more expensive for everyone - even the "good guys" who aren't over committed.
     
  20. lorrimer

    lorrimer Well-Known Member

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    I subscribe to and read everything I can. However an update dated Sept 07 such as is posted on their website at the moment is of little use to me. The communication of AU is diabolical and
    I'm not the first on this board to have noticed it.