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Managed Funds blacklist

Discussion in 'Managed Funds & Index Funds' started by denismo, 1st Sep, 2008.

  1. denismo

    denismo Member

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    Hi,

    I am quite new to the investment and hasn't had any good/bad experiences yet. However, reading through the forums and other websites I noticed one recurring concern from other investors.

    People complain that some managed funds have "dirty" or cheap practices of achieving income through short-selling and other activities which in the end make investors pay CGT or get fully-taxed income instead of fully-franked dividends. In the end, they don't get as much income as they planned, and I don't want to end up in the same situation :) I am aiming to setup an income stream with some hopes for growth.

    I read some posts, and the names of some funds come up (for example, here CFS is mentioned.

    I was wondering if there is a blacklist, either public, or learned through bad experiences of forum users, of bad managed funds/fund managers which one'd better avoid if he wanted to get stable fair income.

    On the related topic, is there a white list of good income-generating funds, which in my view should be funds with fair (franked) dividends. Is there a web site which would allow to see how much dividends and what kind a fund has generated, or to see real after tax returns (which would then allow to estimate the percentage of tax loss)?

    To make suggestions simpler, I'm currently looking at the following funds:
    AMPCI Core Property Fund-Cl A
    AMPCI Gbl P'perty Sec's Fund-Cl A
    AMPCI Small Companies Fund-Cl A
    AMPCI Sustain Share Fund-Cl A
    BlackRock W Comb'd Property Income
    BlackRock W Hedged Global Small Cap
    BlackRock W Aus Growth Share Fund
    BlackRock W Global Allocation Aus
    Colonial W Colliers Int Property
    Colonial W Property Securities
    Colonial W Aust Share Fund Core
    Colonial W Global Resources Fund
    Challenger W P'perty Sec's Fund
    Challenger W Select Aus Share Fund
    Challenger W Aus Share Income Fund
    Challenger W Smaller Comp's Fund
    Challenger W Asian Share Fund
    Perpetual WFI Aus Share Fund
    Perpetual WFI Geared Aus Share Fund
    Perpetual WFI SHARE-PLUS Fund
    Perpetual WFI C'centrated Equity Fd
    Perpetual WFI Industrial Share Fund
    Perpetual WFI Smaller Compan's Fund
    Schroder Aus Equity Fund W Class
    Schroder Asia Pacific Fund S Class
    Schroder Gbl Emerging Mkts Fd W
    Tyndall Aus Share W Portfolio
    UBS Global AM Australian Share Fund

    Any comments on these with regards to white/black listing?

    Thanks.

    Denis
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Denis,

    I don't think there is a "blacklist" for managed funds, anyone who kept it would have to be very careful to make sure they aren't sued.

    The majority of large fund managers don't have dirty tricks, they would ruin their own reputation very quickly, saying that there are posts here about some members complaining of one fund manager who took months to redeem funds.

    You can look up Research Houses like Standard & Poors or van Eyk who will rate the funds. Try and stick to 4 or 5 star funds (A or AA for van Eyk) as these are funds the research houses believe have superior processes.

    Your still looking at the RaboPlus offered funds aren't you? ;)

    Dan

    PS Before making an investment decision speak to your FPA registered Financial Planner.
     
  3. Tropo

    Tropo Well-Known Member

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    "People complain that some managed funds have "dirty" or cheap practices of achieving income through short-selling..."

    Short selling has nothing to do with a ‘dirty’ practises and is totally legal.
    Funds are buying, selling and selling short stocks to generate income. There is nothing wrong with it. :cool:
     
  4. carlosreynolds

    carlosreynolds Active Member

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    In regards to your white list, I assume that you aren't looking for the most income, but rather the most tax-effective income with a good after-tax return. Also, from a managed fund.

    See attached report from Vanguard last year which nails 15 of the top managed funds in Australia.
     

    Attached Files:

  5. crc_error

    crc_error The Rule of 72

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    certainly you wont the least amount of income paid by a fund, as any income goes straight ontop of your marginal tax rate. This is why fixed interest is the most tax offensive investment you can make.

    On the other hand, you can offset this income with a negatively gear investment, like a IP.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think this is a bit of a simplistic view.

    Income is guaranteed once paid - the taxman gets his bit (but you can also offset that against other expenses), but then the rest is yours and a market crash can't take it away from you.

    Growth is tax effective (in that you don't pay tax until you sell, and even then you may well get a 50% discount) - but it is also far more risky than income and can easily disappear.

    Fully franked dividend income is quite tax effective - especially if you are on a tax bracket of no more than 30%, you won't pay any additional tax (in fact you will actually get a tax refund if you are on a lower tax bracket!!) ... and even if you are in a higher tax bracket, you will only pay tax on the difference between your bracket and the company tax rate.

    Imputation funds generally pay out decent levels of highly franked income.

    It comes down to your cashflow requirements and your risk profiles.
     
  7. crc_error

    crc_error The Rule of 72

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    Sim,

    What you say is true. I personally don't consider income when investing, I consider the asset class and my exposure to it. To invest ONLY for income, or growth reduces your diversification.

    In saying that, funds which have excessive stock churning not only increases brokerage costs to the fund, but tax liability.
     
  8. denismo

    denismo Member

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    Perhaps I used too strong a word, but I believe you understood. For my purposes, this is not what I'm looking for. So I want to avoid it, thus asking if anyone knows how to extract this information from say their financial reports.
     
  9. denismo

    denismo Member

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    Oh, I am so used to different legal system... Let's say it differently then - is there any summary information about the split of the income of the funds? In most reports or searches all you can see is income/growth percentage, but in order to be efficient in investment one needs to know a little bit more than that. Just wondering if there is a simple way of getting this information...

    Thanks for the advice, I am considering S&P ratings where available... And I'm almost convinced not to go with RaboPlus (though I opened account already), but then I'm puzzled at what are the other options available to me...
     
  10. denismo

    denismo Member

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    That would probably be more correct - "most tax-effective income with good after-tax returns", thanks :) And I know about Vanguard, but then I need to figure out the rest of the portfolio.
     
  11. denismo

    denismo Member

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    I'm looking for franked dividends, as much as possible, and in unstable environment income is generally not a bad idea - many big companies still continue paying dividends even though they stocks (or market) is down. At least these money are guaranteed to be yours (after tax :)

    What's "IP" by the way?
     
  12. denismo

    denismo Member

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    I see your point then, diversification requires a growth component. From my small personal investigation experience I somehow found that it is easier to diversify the growth, but hard to detect decent income generating entities. Perhaps the problem is in the quality of the funds that I've looked at. Or I just don't understand what I see...
     
  13. denismo

    denismo Member

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    Geez, thanks guys for your replies, really appreciate your opinions. Also wanted to thank the forum owners and everyone who contributed in the past - there is wealth of information on these forums, thanks for sharing!
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Do some research into imputation funds - they are generally fairly conservative buy-and-hold funds which invest in large shares with a good history of paying highly franked dividends. There should also be some underlying growth over the long term as well - although typically not as much as more growth oriented funds.

    Attached is a chart showing the performance of some of the imputation funds out there along with the STW ETF, assuming dividends being reinvested.
     

    Attached Files:

  15. carlosreynolds

    carlosreynolds Active Member

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    Sim, are there any in particular you have in mind? CFS Imputation Fund, BT Imputation Fund, MLC IncomeBuilder, Vanguard High Yield Index Fund, the myriad of Value style funds out there?
     
  16. crc_error

    crc_error The Rule of 72

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    I think thats something YOU need to research, no one is going to give you advise.

    Look at longer term track records, fee's charges, is the brand reputable etc and choose something which you like.
     
  17. crc_error

    crc_error The Rule of 72

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    You need to decide your investment objective. Are you in retirement and want income to support it? Or are you young and looking for max growth (as growth isn't taxed until sold).

    What I meant was I don't break down my investing decisions and say I want X growth and X income. I invest in the asset class, regardless if its considered income or growth. I don't go looking for growth, or looking for income only investments. Growth funds can be sold down each month to provide income anyway if you need it.

    If your looking for stable income, then commercial property is a high income asset class. You could expect 8% PA or or more paid even as often as monthly. If your looking at some good income funds, look at Cromwell and Orchard which own offices/commercial property and collect rent for you. They typically pay every month or quarter and dividend is stable.

    Another income class is covered calls.. There are not many funds which do this, but covered calls strategy is typically a income strategy. Macquarie has one from memory.
     
  18. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    No, I haven't actually researched them - and I haven't been impressed with the overall returns of those which I have seen (admittedly I've only really looked at the CFS fund - which has badly underperformed the market).

    I would need to do some more detailed modelling to analyse how the tax effectiveness of these funds compares with other strategies, and even with pure income generating funds (low tax effectiveness) like NavraInvest.

    I think the concerns by the original poster and by crc_error about stock churn is quite valid - I saw this myself at the end of the 2006/07 financial year where I got a massive tax bill from huge capital gains distributions out of my growth funds, which was quite unexpected.

    Unfortunately, there is no easily accessible data out there comparing the actual breakdown of returns within various funds and analysing how efficient they are for the intended purpose. This is one of my pet-hates about the funds management industry - everyone is too focussed on headline performance rates, which can be extremely misleading (and one of the reasons I started building the Compare Funds website).

    Analysing and comparing after-tax performance is immensely difficult :(
     
  19. carlosreynolds

    carlosreynolds Active Member

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    My query was a bated one - the franking levels of the CFS, BT, Vanguard have been poor in comparison to replicators of the ASX 200. In general, the Imputation style funds have not provided good franked levels of income over the last 5 years. An example is Colonial First State Imputation Fund, BT Imputation Fund - which is not what the name would have you believe.

    On top of that, the total after tax return has been poor ie MLC Income Builder and even the Vanguard High Yield Fund. Some of this is covered in the Vanguard article above.

    Depending on what you define as easily accessible, you can email each fund manager and ask for a history of the franking level (ie a year by year breakdown) and breakdown of return for any investment option (ie capital growth and income). I find they're quite helpful when you mention you're a potential investor.

    Agreed though, there should be a website that provides this information. Where the hell is Morningstar amongst all this? They have only just come around to after-tax returns. Why not franking levels?
     
    Last edited by a moderator: 3rd Sep, 2008
  20. crc_error

    crc_error The Rule of 72

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    If you don't want to pay tax on income, then commercial property trusts are for you. The Cromwell and Orchard funds pay up to 100% tax Deferred income, meaning you only pay tax on the income, once you sell the orginal units in the fund. so if you never sell, you never pay tax!