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Macquarie Equities Enhanced Income Fund

Discussion in 'Managed Funds & Index Funds' started by MrDarcy, 8th May, 2006.

  1. MrDarcy

    MrDarcy Well-Known Member

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    The one that Peter Spann/ Freeman Fox are promoting. I'm about to send in an application including the 100% finance.

    What are the forum's thoughts on the product ?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I must admit I haven't read the PDS myself, but I have heard some people making comments about the product. Either way I'm certainly not in a position to judge the product.

    Some questions though (may or may not be relevant) ... does this product offer a "capital guarantee" ? If so, do you understand where the cost of this guarantee comes from (nothing is free - you will pay for it somewhere !!).

    Does this product invest in assets that you understand ? Do you have a gut feel for how those assets are likely to perform during the lifespan of your investment ?

    Is this product liquid ? Are you going to be locking yourself in with limited or no options to retrieve your capital should your circumstances change ?

    Just some thoughts. I'm not judging either way.
     
  3. artgul

    artgul Well-Known Member

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    Hi MrDarcy,
    I have also being considering this investment and bellow are my thoughts on the subject.

    I like that:

    1/ MAC would lend you up to 100% of the investment.
    2/ It's capital protected (@ the end of the period)
    3/ Tax advantages (-ve gearing, some franking dividends, etc). Which would offset some of the Navra Fund dividends :D

    My main concerns are:

    1/ One is *virtualy* locked in for almost 7 years (inflexible)
    2/ Difficult to *predict* what would be the future performance (very short history of the Buy Write Fund and no history at all for the Timing Fund). Also. see point 1
    3/ Interest have to be paid yearly in advance and there is not loan for interest assistance thus, there is a guarantee that there would be 2 years of interest payments before one can see (if any) some dividends.
    4/ Cost of the opportunity (interest paid in advance during a 6 years period)
    5/ Risk of not getting any distribution and having to paid tax + interest

    Personaly, I'll go for it but, with much lesser amount that I previously thought I would. The other thing to take in account is that this is Series 1 investment so, I think that it would be reasonable to expect Series 2, 3, 4, etc... If every thing goes well then, i don't see any reason for not increasing the investement.

    Regards,

    artgul.
     
  4. artgul

    artgul Well-Known Member

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    The capital is only guarantee @ the end of the period. It costs 0.2% pa (paid in advance) of the initial funds invested.

    Regards,

    artgul
     
  5. Rickson

    Rickson Well-Known Member

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    This product fails a simple test for me. It is not simple enough to explain to my partner, who is property savvy but learning about other financial products.

    I think this test is a good test, almost Buffet like, and I am happy to keep this test for a while.
     
  6. jscott

    jscott Well-Known Member

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    Have a careful look at the fee's - they are HUGE in my opinion! :eek:
    If Macquarie are so certain of the performance why don't they "only" take a performance fee... The Buy-Write fund has not performed particularly well in the curent market - you would've been much better in a passive index fund.
    Options writing requires more of a market that trends sideways for a long time so I'm waiting out to see how it performs in differing markets.
    I'm also not to sure about the so-called tax effectiveness.
     
  7. -T-

    -T- Well-Known Member

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    The stage I'm at with investing, I'm looking predominantly for growth. However, when I first came across this income fund, I was interested. After a little thought though, I calculated it would hinder my progress more than help it.

    Ideal situation: fund pays (interest + x)% return, then interest is due, that is paid and a profit is kept. But obviously that's not the way it works. :)

    Actual situation: you pay interest up front, wait a year, pay the interest again, wait a month, receive distribution, use all of it to cover source of first two interest payments, wait a year, pay interest, get distribution, pay last interest, keep small profit, etc.

    Conclusion: for my personal strategy, the funds needed for the first few interest payments would be much better utilised elsewhere. I could be wrong, but that's my thinking so far. :D
     
  8. MrDarcy

    MrDarcy Well-Known Member

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    You all thinking much the same things as me. Perhaps a "Navra" style structure is needed. Take the cash may have invested is something like MEIF and margin into Navra instead. Take advantage of the 100% and cheapish finance and buy MEIF as a long term investment. Good use of the $.

    There is are two good threads with info on this fund on Somersoft, under "meeting place", I supposed as it's not property.
     
  9. HHH

    HHH Active Member

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    But that still has the problem mentioned above, even with the 100% finance, you still have to personally cover the first two years interest with other funds. And if you are suggesting to use the income from Navra to do this, then again it doesn't help when you the purpose of investing in Navra was to fund IP holding costs.

    So yes, might be a good Long Term investment, but myself and others want the cashflow from Navra for our properties.
     
    Last edited by a moderator: 9th May, 2006
  10. Glebe

    Glebe Well-Known Member

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    I'm thinking of investing $100k. I just love the 100% finance, and I figure beating 7.5% isn't that hard. So even if it averages 10% p.a. for 7 years, it's 2.5% p.a. of free money.. except for the initial fees.
     
  11. Nigel Ward

    Nigel Ward Team InvestEd

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    That's a valid point Glebe. But the point no-one seems to be able to answer is what does this do to your borrowing capacity for the life of that loan?
     
  12. -T-

    -T- Well-Known Member

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    Do you mean your borrowing capacity in terms of credit rating and having to disclose it as another debt to future lenders? Or borrowing capacity in terms of having money tied up in the interest repayments?

    If the latter, consider putting $250k into the fund. That's a bit less than $40k for the first two interest payments. With $40k you may be able to gear 80% into a growth investment, so about $200k. As I've shown in a thread somewhere else, the higher (expected) rate of return will take over pretty quickly. That's the way I'm looking at it, the opportunity cost.

    However, I could see the product being great for others with different plans.

    If it was 100% finance, nothing out of my pocket, still a possibility that the fund performed below the interest rate, but I did my DD, then I'd be applying for as much as I could.
     
  13. Nigel Ward

    Nigel Ward Team InvestEd

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    The former.

    The latter is a cashflow mgmt issue as you rightly point out. Same issue for all investments involving gearing.

    Cheers
    N.
     
  14. -T-

    -T- Well-Known Member

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    Well, I think it all depends on your willingness to disclose. If you 'tell the truth, the whole truth, and nothing but the truth, so help me John Howard', then they are going to take it at face value. I guess the weight given to the return in terms of covering the liability would be at the discretion of the lending institution. But how do lenders normally see managed fund returns? As absolute income, or do they maybe consider a percentage of past performance (similar to rental income)?

    Someone on SS said that it would register as $1 on your CRAA, so if you only told your lending institution 'what they needed to know', then maybe it would have no impact.

    Anyway, it's a good point, especially if it disrupts the strategy of an investor who is focussed elsewhere but just took it up for the 'free money' factor.
     
  15. johnnyb

    johnnyb Well-Known Member

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    I'm doing some refinancing at the moment and asked my broker whether I could include my MF income. His reply was that I could do that only if I had 2 years worth of statements showing the distributions. So if this applies here, if you're applying for finance you may have a $100K (or whatever) liability to report (assuming you tell the whole truth!), but you'll have to wait a couple of years before you can include any income from the fund.

    John.
     
  16. MrDarcy

    MrDarcy Well-Known Member

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    Biggest objection so far is the large outlay for interest before any income is received. Good for this year, get those deductions in now while they are worth something.

    Anyhow, raising an old favourite topic, would a loan to pay for the interest have its own interest deductable ?

    For example. I apply for $100k in MEEIF and obtain a $100k loan. The $7500 interest bill is drawn from a LOC at 7.5% and paid directly to Macquarie. Would the $562.50 interest that will be accured on that $7500 loan also be deductable ?

    Can a forum accountant please advise on that ?
     
  17. Glebe

    Glebe Well-Known Member

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    I'm not a forum accountant but I thought we knew the answer to capitalised interest on interest was accepted as being tax deductible.
     
  18. MrDarcy

    MrDarcy Well-Known Member

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    The Freeman Fox product from Macq is now not so unique. A similar Macquarie product now also has capital protection AND 100% finance availale (not new product, but new options), with a slightly cheaper rate. Not sure about the interest assistance loan yet.

    This product is also a little more diverse too.

    Maq Multi-Strategy Fund

    Edit: Interest assistance loan available. Borrow half the first years interest in advance and replay P&I. Better for cash flow than FF version, but PDS may still hold some surprises.
     
    Last edited by a moderator: 11th May, 2006
  19. Tom&Don

    Tom&Don Active Member

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    As far as im aware, its ok for shares, not for IP.
     
  20. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Actually no ... the case everyone gets confused about is the Hart case ... but that had specific circumstances ... mostly about a structured product that effectively made an otherwise non-deductible debt deductible by capitalising interest.

    If you aren't doing that (trying to convert non-deductible debt to deductible debt via a contrived mechanism that involves capitalising interest) ... you shouldn't have a problem with either shares or property. Naturally, you need to get your own professional advice for your own personal situation.