Managed Funds My current approach to managed funds

Sim,
Firstly, good luck with the assignments. If you get the time, I would love to see a comparison between the income funds. I'm particularly interested in comparing, Navra, Aurorra Dividend Income Trust and Zurich Equity Income Fund. Then perhaps see how the winner stacks up against STW over a five year period.
Thanks

 

Choosing managed funds

Some tips that the managed fund industry doesn't want you to know:

1) Most of the popular Actively Managed funds on the market are "index huggers"

This means over time they largely perform the same as the market whose benchmark they claim to be trying to beat.

If you want index like returns (i.e the market's return) then the cheapest way to get it is to buy a genuine index fund. Don't waste your money on the majority of active mangers (at often 3 times the cost) to give you the same result less their fees.

2) Diversifying across index hugging funds may not provide a great deal of true diversification as they are investing in the same stocks.

3) Most managers quote before tax returns. Watch out for funds that trade more than average as they will generally have worse after tax returns due to realised taxable gains.

4) Always check the split of returns from a fund between income and growth. Sometimes this can provide a nasty surprise come tax time for a number of reason. Even main stream index funds have flaws in their process that results in excessive taxable income.

5) Make sure liquidity of the fund is sufficient to meet its specified redemption payment time frame. (e.g watch unlisted property funds where all money is in properties and yet they promise a 30 day withdrawal time frame)


My screens for adding active mangers to the portfolio are:
a) The fund must do something very different from the index. (This will mean it will sometimes underperform the index too.
b) The fund must have a long term proven track record of beating the index
c) The people and processes that created the outperformance must be intact.

Finally be very worried if the fund you are in provides excessively high returns that are above the benchmarks they set themselves based on their investment mandate or comparative funds produce over the same period of time.


Brisbane Financial Planners | Financial Advice | Financial Advisor

 

funds

Can't help you with Navra but know the other two reasonably well. Aurora has done extraordinarily well to date but has some real risks due to its high concentration to certain stocks at any point in time. I'd rate it as speculative not a portfolio core. Zurich equity income is a fund that trades off potential capital upside for a more reliable income yield. Again not a portfolio core fund but one that might have a purpose for a client wanting higher income. Personally I'm not sure what sort of client this might suit however. Always be carefull with contrived or more complicated products as there is always a catch/potential downside/extra risk/extra cost. If you can't find it and therefore accept it with full knowledge then don't invest in it is my philosophy.

Brisbane Financial Planners | Financial Advice | Financial Advisor

 

Hi Lorrimer,

As DolfinWise said, ZEIF is probably more closer to the Aurora Buy Write fund (ABW) than Aurora Dividend Income fund (AOD). Navra I had issues trying to get data from the website so I can't comment. Maybe someone more familiar with the Navra fund would be able to comment?

ZEIF tries to have a beta between 0.50 to 0.60 compared to the markets beta of 1.00 http://en.wikipedia.org/wiki/Beta_(finance) . It aims to pay 10% pa on a monthly basis by investing in the ASX200 though only buying approximately 50 stocks (guessing trying to invest in the better stocks to generate income from) Website Zurich Financial Services - Fund Profile: Equity Income Fund page
A factsheet is here http://www.zurich.com.au/zportal/cs...here=1171841984823&blobheader=application/pdf
Approximately $175m invested. This fund is up approximately 26 from March 2009 to October 2009, which is a beta of approx 0.52.

Aurora Buy Write (ABW) fund distributes half yearly at June 09 it was approximately 5.1% annualised/pa. Though according to their website can vary quite considerably. The Net Tangible Assets has risen approximately 13.5% from March to August (sorry that's as far as their website goes up to).
Aurora Funds Management Ltd
Factsheet http://www.aurorafunds.com.au/downloads/ABW_Newsletter.pdf
Market capitalisation $8.5m

Aurora Dividend Income (AOD) strategy is to buy when dividend announcements come out and sell after holding a stock for over 45 days to receive the franking credits. Aurora Funds Management Ltd With such a high turnover (ie, every 45 days or 800% pa) I am surprised the fees are not higher, though these may just reduce the actual income. This fund has returned about 9c in the last year with a unit price approximately $1.10 (7.2% pa). 5c was dividend and 4c was franking credits.

STW invests in the ASX200 to replicate the index. Pays dividends half yearly. Market cap $18.5b (yes Billion). Returns are within about 0.10% of index. SSgA: SPDR S&P/ASX 200 Fund
Yield is approximately 4.8% pa with franking credits. Factsheet http://www.spdr.com.au/fund_doc/fund_doc_20080229_173721/Factsheet200_Jun_09_SPDR.pdf

Cheers,

Dan

PS This is general information which can be found on the different investments websites. Before making an investment decision speak to your FPA registered Financial Planner.

 

Hi Dolfinwise,

Usually one who is looking for a more defensive investment due to the beta being lower than the market. Also one looking for good income on a consistent basis.

Cheers,

Dan

 

What would be your thoughts on using them in a margin loan (with say a 45-50% LVR and capitalising the interest) as a "debt recycling engine"? Draw down on spare equity on home loan and put into margin loan and then use dividends to pay down non-deductable part of home loan. ... repeat etc ...

Thoughts?

Jason

 

Hi JRC,

There is nothing stopping you from doing that.

I would strongly suggest you speak to an FPA registered Financial Planner before you make an investment decision. They can take into account your whole financial situation and give you advice based on your individual situation.

Cheers,

Dan

 

Ha Ha, Just saw this agin so thought I would *bump it* Sim