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margin loan against NI - what LVR's are people doing?

Discussion in 'Managed Funds & Index Funds' started by transit, 31st Jul, 2007.

  1. transit

    transit Well-Known Member

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    Howdy all, are there many people using a margin loan to increase their holdings in the NI Aussie Share Retail Fund?

    If so, i'm wondering what people think is a 'safe' buffer to have with NI when they margin lend against it? Due to the fairly conservative nature of the fund and the steady unit price, i'm thinking that an LVR of 60-70% would be safe without the risk of getting margin calls?

    I'm in the process of setting up a margin loan with St George as they go to 75% on NI (comsec don't accept them) and i'm trying to decide how much to apply for.

    Apparently i send in my margin loan application form along with my application for units (NI PDS from investsmart) and my cheque.

    However i need to write down how many units i want and i'm thinking of applying for $100k of units and send them a cheque for $30k. This means my LVR will be 70%.

    Any feedback on NI LVR's would be appreciated.
     
  2. voigtstr

    voigtstr Well-Known Member

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    I think most people go 50% to give themselves a fairly decent buffer.

    1.1378
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    here are the last 7 redemption prices for navra.. thats about a 5% downswing isnt it?
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Steve Navra used to recommend 50% maximum, although now with the large cash holdings, he is suggesting that some people might be comfortable as high as 60%.

    I would be cautious going much higher if you really want to avoid a margin call ... the fund will still drop if the market crashes ... so you want to do the sums: http://www.invested.com.au/83/market-drop-before-margin-call-7610/
     
  4. OLI

    OLI Well-Known Member

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    I had a margin loan at 50% but recently increased it to 60%.
     
  5. transit

    transit Well-Known Member

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    Thanks for the comments and link to the spreadsheet Sim. I just plugged in my figures of a $70k loan with $100k initial value and i won't get a margin call until the value drops to $84k (a 16% drop).

    Is it likely the unit price would drop by such a large amount?... hmmm i guess it's possible if the unit price was able to appreciate to $1.21 like it did a while back in a good market.

    I only want to put in $30k of my own cash and $100k of units has such a nice ring to it (instead of $80k at 60% LVR) :D
     
  6. bundy1964

    bundy1964 Well-Known Member

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    I would do 75% which the way I am set up would take a 25% drop to trigger a margin call, over a 25% drop in a day some stops would be hit to protect my position.
     
  7. KDM

    KDM Member

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    A PS146 compliant advisor will probably suggest 50% as a safe LVR, but will also talk to you about your investor temperament (ie, are you a conservative investor, high growth/aggressive, etc). I am comfortable with 60%.
     
  8. Simon

    Simon Well-Known Member

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    That might even happen after a hefty distribution ...
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    ... only if you take the distributions as cash and not reinvested or not paid into your margin loan.
     
  10. Saskatoon

    Saskatoon Well-Known Member

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    Hi, I agree with KDM, OLI and of course Sim'. Without knowing your personal circumstances most advisors (including those in Navra Financial) would probably recommend only 50%, perhaps 60% at most.
    Terry
     
    Last edited by a moderator: 31st Jul, 2007
  11. tailcat

    tailcat Well-Known Member

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    I am assuming that the people with loans that are above 50% do not capitalise the interest, but what about the 50% lvrs? Is anyone capitalising at this ratio?

    I have only just put my foot in the water so far (no margin loan), but next time (after the correction????) I will probably go to 60%.

    Tailcat
     
  12. bundy1964

    bundy1964 Well-Known Member

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    I push the LVR as high as they will let me for now and capitalise the interest.

    I hope Sim and co are sittng down when they read that :)
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    My LVR is very high (read: in the buffer zone :eek: ) at the moment because of some short term aggressive capital requirements I have. I'm not entirely happy about it, but I'm able to do it due to my active approach to managing my funds. I don't recommend anyone looking for a long term buy-and-hold to consider gearing that highly.

    I'd be happy with my LVR around 60%, but my long term goal would be to maintain a 50% or lower LVR.
     
  14. bundy1964

    bundy1964 Well-Known Member

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    When I get to where I want to be I will let the LVR drop, till then I will squeeze everything I can while market conditions seem favourable.
     
  15. KDM

    KDM Member

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    I am quite comfortable with 60% LVR and capitalising the interest.
     
  16. Tropo

    Tropo Well-Known Member

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    Play hard BUT in the same time watch your back pocket.:p
     
  17. Glebe

    Glebe Well-Known Member

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    But even if you reinvest it, there's a lag. I guess you can tell the lender you're waiting for the units to be applied to your account.
     
  18. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Hi guys,

    When I bought back in to the fund in March my starting LVR was 62%. I bought back in just before the April distribution which kicked it up a bit, then the mega distribution in July and the recent pull-back means I'm sitting at 67%.

    But, having now paid off the house, I'm going to start re-investing my distributions to push that LVR back down towards 50%. The good thing about re-invested distributions is that they're interest free amounts. i.e. Cash. At present every cent I have invested is borrowed, some is an LOC and the rest is the margin loan. In fact, if you add my LOC to the calculation when considering my "loan"to valuation, then my LVR is about 105% at the moment due to capitalised interest. :D

    Cheers,
    Michael.
     
  19. MiddleClassMonkey

    MiddleClassMonkey Well-Known Member

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    MichaeWhyte, do you invest in your personal name or another structure?

    - MiddleClassMonkey
     
  20. Simon

    Simon Well-Known Member

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    Can take up to a month for the new units to appear on your account. Though a margin call in this case would be fixed with a simple call.